Head and Shoulders
Head and shoulders is a bearish reversal pattern with three peaks—a higher peak (head) between two lower peaks (shoulders). When the neckline breaks, it signals the uptrend is over.
Understanding the Concept
This is one of the most reliable reversal patterns in trading. When you spot a proper head and shoulders forming at the top of a rally, start thinking about exits. The pattern shows bulls made one last attempt to push higher (the head) but failed. Now sellers are in control. The neckline break is your confirmation. What makes it powerful isn't just the shape—it's the psychology. You're watching enthusiasm (left shoulder), climax (head), failure to make new highs (right shoulder), then capitulation (neckline break). The inverse pattern (upside-down) signals bullish reversals at bottoms.
Real-World Example
Ethereum rallies to $4,000 (left shoulder), then $4,800 (head), falls back, and only makes it to $4,200 (right shoulder). When it breaks below the $3,500 neckline, you know $3,000 is probably coming.
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