Technical Analysis: Part 7 ( Head & Shoulder Pattern)

Head and Shoulder Pattern: Head and shoulder pattern is strong reversal pattern. Its formation consist of left shoulder, a head and a right shoulder and a line drawn as a  neckline which is support level of this pattern.

Important points to be noted:

• High volume at left shoulder, moderate volume at head & low volume at right shoulder.
• Sharp increase in the volume below the neckline indicates downtrend.
•  Downward sloping neckline indicates that the prices are making lower lows & is powerful head and shoulder pattern.

 Trading signal is shown in below chart.

 Inverted Head & Shoulder: This pattern is opposite of head & shoulder pattern. It forms in downtrend & after breaking the neckline moves upward with sharp rise in volume.