The head and shoulders chart pattern is a technical analysis tool used in stock trading. It is one of the most well-known and widely recognized chart patterns, and it is used by investors to identify potential reversals in the stock market. The pattern consists of three peaks and two troughs, and can be used to determine the direction of a stock’s trend.
The first peak, or ‘head’, is highest and is followed by a lower peak, or ‘shoulder’, on either side. This is followed by a second lower peak, or ‘shoulder’, and then a third peak, or ‘head’, which is lower than the first peak. This indicates a downtrend in the stock’s price. The head and shoulder pattern is a strong indication that a reversal is imminent.