Chart Patterns: Head and Shoulders pattern
It doesn't really matter if you're a pro trader or a beginner in trading business when it comes to popularity of Head and Shoulders (H&S) patterns. It doesn't really matter if you are familiar with many chart patterns, because recognizing H&S pattern is a must for all traders, no matter to which level they belong to. It represents one of the most reliable and respected reversal chart patterns out there. As the name says, the H&S looks like a head with two shoulders on both sides. In case the price reverses from bearish to bullish, that is called Inverse Head and Shoulders pattern, where the head acts as a bottom. It is very important to reaffirm that the H&S pattern is reversal and not a continuation pattern.
Structure of the H&S
There are four main elements of the H&S pattern: a head, two shoulders and a neckline. Once the price breaks below the neckline, which should act as a support, that translates into a confirmation of the H&S pattern (Picture 1). As it can be clearly seen on the weekly chart of USD/JPY, the price has a head (top), two shoulders which, in this care, are not perfectly symmetrical and a neckline. Once the price breaks …