Shape and Characteristics
The pattern forms three peaks referred to as the left shoulder, the head, and the right shoulder, and the line connecting the two troughs between them is called the "neckline." Once the right shoulder forms and the price breaks below the neckline, the pattern is considered complete, and some view this as a point where a shift toward a downtrend becomes more likely to be recognized. The mirror-image shape (three troughs) is called an "inverse head and shoulders" and is regarded as a pattern near market bottoms.
How to Read It, and What to Watch Out For
A head and shoulders pattern is only one pattern identified from past chart shapes — its appearance does not guarantee that the price will definitely reverse afterward. Judging the shape also involves a subjective element, so it is common to check volume and other indicators together before drawing conclusions.