Chart Examples of Head and Shoulders Patterns

HEAD AND SHOULDERS IN AN UPTREND (BEARISH)

Coffee / July 2002

Classic head and shoulders reversal pattern in an uptrend (bearish). Measure the size of the base (purple line) and subtract that (green line) from the breakout point of the neckline for your measured target (green dotted line).

The head and shoulders signaled a market top. You can see that the volume diminished with each market top during the formation of the head and shoulders pattern, but then picked up on the breakout and continued to expand on the sell-off.

The head and shoulders signaled a top to this rally. (The Japanese Yen had been in a downtrend for more than three years prior to this relatively short lived upmove.) As you can see, the head and shoulders pattern is easily recognizable on the price chart. While the volume chart is'nt as clear, closer scrutiny will reveal that indeed each topping day in the pattern was made on diminishing volume. The big jump in activity just prior to completing the 'head', was done on short covering, (shorts getting out of their positions rather than new longs coming in.) However, the familiar spike in volume is evident on the breaking of the neckline.

This head and shoulders pattern signaled an end to corn's advance. (Prior to this bounce, it had been in a downtrend for about six months.) You can see the volume diminish as the market eventually loses steam, followed by the typical burst of activity with the breaking of the neckline.

This head and shoulders pattern reversed a nearly year long uptrend. (You'll notice that in this example the neckline is sloping on a slight downward angle.) Nevertheless, as with the other examples, as the pattern unfolded, the volume weakened with each topping action. In fact, volume actually started to pick up on the initial dump after the head was formed (another bearish sign). And of course, there was the big increase in volume on the breaking of the neckline. (The market actually gapped below it!)

The head and shoulders pattern foreshadowed the end to the British Pound's run. Volume dried up on the last few advances and prices ultimately collapsed. The dramatic plunge through the neckline was accompanied by a huge increase in volume.

The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. This does not contain specific recommendations to buy or sell at particular prices or times, nor should any of the examples presented be deemed as such. There is a risk of loss in trading futures and futures options and you should carefully consider your financial position before making any trades. The reference to statistical probabilities does not pertain to profitability, but rather to the direction of the market. The size and the duration of the markets move, as well as entry and exit prices ultimately determines success or failure in a trade and is in no way represented in these statistics. Furthermore, no representation is being made that any of the examples shown resulted in actual trades. This is not, nor is it intended to be, a complete study of chart patterns or technical analysis and should not be deemed as such.

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