How to Trade the H&S Pattern

The head and shoulders chart pattern is basically a plot twist in the trend storyline, most common in uptrends.

Not only does “head and shoulders” flip the trend script, but it’s also known for flipping your hair game. 😂

Today, we’re keeping it real with trend reversals and saving the hair tips for another day.

Head and Shoulders

A head and shoulders pattern is like the ultimate plot twist in trend reversal formations.

It goes down with a peak (shoulder), then a higher peak (head), and then wraps up with another lower peak (shoulder).

You connect the dots with a “neckline,” linking the lowest points of the two dips.

The slope of this line can either be on the upside or downside. Usually, when it’s on the downhill dive, the signals are more trustworthy.

Check it out, this is one clear-cut head and shoulders pattern.

In this setup, the head is the second peak and totally the tallest point. The two shoulders peak too but don’t outshine the head.

For this setup, we slide in an entry order below the neckline.

We can also put our math skills to the test by measuring the top of the head to the neckline.

This distance is a decent guess for how far the price will dip after it breaks the neckline.

You can peep that once the price dips below the neckline, it makes a move equal to the distance from the head to the neckline.

We know what you’re thinking, “the price kept going even after it hit the target.”

And our response is, “DON'T BE THIRSTY!”

Inverse Head and Shoulders

The name is kinda self-explanatory. It’s essentially a head and shoulders setup, just flipped upside down. 🙃

A dip forms (shoulder), followed by an even deeper dip (head), and then another higher dip (shoulder).

These spicy moves show up after mega downward spirals.

Here you can see it’s basically a head and shoulders, just flipped on its head.

In this scenario, we’d place a long entry order above the neckline.

Our target is set just like the head and shoulders pattern.

Measure the distance between the head and the neckline, and that’s roughly how far the price will climb after breaking the neckline.

You can see the price did a nice lil’ climb after it broke the neckline.

If your target gets hit, then be happy with your gains.

However, there are some next-level trade moves where you can lock in some gains and still keep your play open just in case the price continues to vibe in your direction.

You’ll get the scoop on those later in the course.