I’m sure you have heard of the famous “Head and Shoulders Pattern” but what exactly is it and why does it put you at an advantage to be able to spot this pattern? Watch the video below as we break it all down for you with a visual.
So what is a “Head and Shoulders Pattern?” According to Investopedia.com the
DEFINITION OF ‘HEAD AND SHOULDERS PATTERN’
is a technical analysis term used to describe a chart formation in which a stock’s price meets the following criteria:
1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.
The first and third peaks are shoulders, and the second peak forms the head.
If you take nothing else away from this pattern be sure to note that it is a bearish reversal pattern and is said to be one of the most reliable bearish reversal patterns. Spotting this pattern early can save you from major loses and if you know how to play the down side of the market by either shorting stocks or buying puts, you could stand to make some pretty profits.