Head and shoulders pattern: how to read it on a chart
The head and shoulders pattern is three peaks with the middle one highest. See the exact rules, the neckline, where the idea fails, and tap the head on a chart.
A head and shoulders pattern is three peaks in a row: a left shoulder, a higher head, then a right shoulder about as high as the left. The lows between them form the neckline (on this site: head at least 2% above both shoulders, shoulders within 3% of each other, the two lows within 2%).
Practice: tap the head
How to identify it (the exact rules)
These are the rules this site uses to build and grade every chart. Traders do not all use the same numbers; ours are published so you can check every answer (see the methodology).
- Swing high: a candle whose high is above the highs of the 3 candles before it and not below the highs of the 3 after it, so a tie counts once, at the first candle (swing low: the mirror).
- Three consecutive swing highs: left shoulder, head, right shoulder.
- Head and shoulders: the head at least 2% above both shoulders; the shoulders differ by at most 3% of the head's price; the two troughs are within 2% of each other and both at least 2% below the lower shoulder.
- Both neckline points (the lowest low between each shoulder and the head) are at least 2% below the lower shoulder. The neckline is their average.
What it shows
Picture three attempts by buyers to push price higher. The first push makes a high and fades: that is the left shoulder. The second push goes further and sets the top of the whole shape: the head. Then price falls back to roughly the same floor it found after the left shoulder. The third push is weaker and stalls well below the head: the right shoulder.
Read as a story, the pattern says demand is tiring. Buyers still defend the floor, but the last rally reaches less far than the one before it. In the chart above, you tapped the head: the middle peak of three swing highs in a row, standing clearly above both of its neighbours.
The parts of a head and shoulders
| Part | What it is | Rule on this site |
|---|---|---|
| Left shoulder | First of three swing highs in a row | Higher than the 3 candles on each side |
| Head | The middle swing high | At least 2% above both shoulders |
| Right shoulder | The third swing high | Within 3% of the left shoulder (measured against the head) |
| Neckline lows | The lowest low on each side of the head | Within 2% of each other |
| Clearance | Gap between the shoulders and the lows | Both lows at least 2% below the lower shoulder |
| Neckline | The floor of the pattern | The average of the two lows |
A nearly flat neckline
Textbooks often draw the neckline as a tilted line through the two lows. This site keeps it simple: the two lows must sit within 2% of each other, and the neckline is their average, a flat floor. A pattern whose lows drift far apart is left out of the exercises on purpose, so there is never a doubt about where the floor is.
Most often confused with: the double top
A double top has two peaks at about the same height. A head and shoulders has three, and the middle one is clearly taller. The trouble comes when the "head" barely pokes above the shoulders. On this site, a middle peak less than 2% above the shoulders is not a head, and three peaks at one level read closer to a triple top. The other common mix-up is naming the pattern after two peaks, before a right shoulder exists. Until the third swing high is in place, you are looking at a guess.
What it does not tell you
It does not tell you how far price will fall, or whether it will fall at all. Many chart readers wait for a close below the neckline before they treat the pattern as complete, and plenty of charts show three bumps that never break their floor. A popular convention, the measured move, takes the distance from the head down to the neckline and projects it below the break. That is a drawing habit, not a forecast. The pattern also says nothing about timing, about news, or about the wider market.
How reliable is it?
Two academic studies looked at this pattern with fixed, automated rules rather than hand-drawn lines. Lo, Mamaysky and Wang (2000) used kernel regression to find patterns on US stocks from 1962 to 1996 and reported that several of them, head and shoulders included, carried some incremental information about returns. That is a finding about information, not a claim that trading the pattern makes money. Savin, Weller and Zvingelis (2007) tested head and shoulders on S&P 500 and Russell 2000 stocks from 1990 to 1999. They found little or no support for using it as a stand-alone strategy, but some predictive power for excess returns when it was combined with holding the market. There is no reliable win rate. Numbers quoted online depend on who drew the pattern and which failures were left out.
Where the idea is proven wrong
The whole idea rests on one fact: buyers could not get back to the head. If price climbs back above the right shoulder and then above the head, the story of tiring demand is gone: the "head" was just one step in a rise. The floor matters too. As long as price holds above the neckline, the shape has not shown that buyers gave up. A pattern that never loses its floor is just a range with a spike in the middle.
Volume
Classic texts say volume tends to shrink on the head and the right shoulder, then pick up on the break. The exercise on this page is graded on price alone: you judge the three peaks, not the volume.
Frequently asked questions
Is a head and shoulders pattern bullish or bearish?
The standard version is read as bearish: it forms after a rise and suggests buyers are losing strength. Most chart readers treat it as complete only once a candle closes below the neckline. The upside-down version, the inverse head and shoulders, forms after a fall and is read the opposite way. Neither version guarantees what price does next.
What is the neckline in a head and shoulders pattern?
The neckline is the floor under the pattern, set by the two lows on each side of the head: the low between the left shoulder and the head, and the low between the head and the right shoulder. On this site those two lows must be within 2% of each other, and the neckline is their average. Traders usually wait for a close below it.
How do you measure a head and shoulders target?
Many chart readers take the vertical distance from the top of the head down to the neckline and project that same distance below the break. This is called the measured move. Treat it as a convention for sizing up the pattern on a chart, not as a forecast. Price can stop well before that level or travel far past it.
How often does a head and shoulders pattern fail?
There is no reliable statistic. Results depend on the exact rules used to find the pattern, the market, the period and whether costs are counted. Academic work with automated rules found the pattern carried some information about later returns but gave little support to trading it on its own. Any single percentage you read online should be treated with caution.
Sources
- Lo, Mamaysky and Wang (2000), Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation. Journal of Finance 55(4) (Research paper)
- Savin, Weller and Zvingelis (2007), The Predictive Power of "Head-and-Shoulders" Price Patterns in the U.S. Stock Market. Journal of Financial Econometrics 5(2) (Research paper)
- Introduction to investing (SEC, Investor.gov)