Series 3: 6.2.3.1.1. Head And Shoulders Reversal—Top And Bottom

6.2.3.1.1. Head and Shoulders Reversal—Top and Bottom

Suppose an uptrend is proceeding normally, takes a corrective dip, and rises to new heights. Then prices decline through the trend line and below the previous peak. Still, the market rallies again, though on lighter volume, but it cannot reach the previous peak. At this point, the major uptrend line has been broken, signaling at least a sideways trend.

What we have just described is called a head and shoulders pattern. Three peaks have been identified. The middle peak (the head) is the highest, with two lower peaks (the shoulders) on either side. The