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Sri Lanka Equity Forum » Stock Market Charts & Graphs » Chart Pattern - Head And Shoulders

Chart Pattern - Head And Shoulders

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1 Chart Pattern - Head And Shoulders on Tue Aug 16, 2011 6:32 pm

wallstreetguy


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
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When I was doing some research I encountered with a chart pattern . Counter BALA.N0000

The head-and-shoulders pattern is one of the most popular and reliable chart patterns in technical analysis. And as one might imagine from the name, the pattern looks like a head with two shoulders. Head and shoulders is a reversal pattern that, when formed, signals the security is likely to move against the previous trend. There are two versions of the head-and-shoulders pattern. The head-and-shoulders top is a signal that a security's price is set to fall, once the pattern is complete, and is usually formed at the peak of an upward trend. The second version, the head-and-shoulders bottom (also known as inverse head and shoulders), signals that a security's price is set to rise and usually forms during a downward trend. Both of these head and shoulders have a similar construction in that there are four main parts to the head-and-shoulder chart pattern: two shoulders, a head and a neckline. The patterns are confirmed when the neckline is broken, after the formation of the second shoulder. The head and shoulders are sets of peaks and troughs. The neckline is a level of support or resistance. The head and shoulders pattern is based on Dow Theory's peak-and-trough analysis. An upward trend, for example, is seen as a period of successive rising peaks and rising troughs. A downward trend, on the other hand, is a period of falling peaks and troughs. The head-and-shoulders pattern illustrates a weakening in a trend where there is deterioration in the peaks and troughs.

Again, the head-and-shoulders top signals to chart users that a security's price is likely to make a downward move, especially after it breaks below the neckline of the pattern. Due to this pattern forming mostly at the peaks of upward trends, it is considered to be a trend-reversal pattern, as the security heads down after the pattern's completion. This pattern has four main steps for it to complete itself and signal the reversal. The first step is the formation of the left shoulder, which is formed when the security reaches a new high and retraces to a new low. The second step is the formation of the head, which occurs when the security reaches a higher high, then retraces back near the low formed in the left shoulder. The third step is the formation of the right shoulder, which is formed with a high that is lower than the high formed in the head but is again followed by a retracement back to the low of the left shoulder. The pattern is complete once the price falls below the neckline, which is a support line formed at the level of the lows reached at each of the three retracements mentioned above.

2 Re: Chart Pattern - Head And Shoulders on Tue Aug 16, 2011 7:43 pm

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Great stuff thanks

3 Re: Chart Pattern - Head And Shoulders on Wed Sep 07, 2011 3:03 pm

MY MONEY

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Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
this will be more helpfull if you can uplode some pics

4 Re: Chart Pattern - Head And Shoulders on Wed Dec 14, 2011 9:09 am

amilaela

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Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
thanks

http://www.facebook.com/profile.php?id=100001851586843

5 Re: Chart Pattern - Head And Shoulders on Thu Dec 15, 2011 6:04 pm

smallville

avatar
Associate Director - Equity Analytics
Associate Director - Equity Analytics
Hey I appreciate your post, just few things that I would like to bring up..

BALA's H&S is not a convincing pattern.. (Having said that even ASI has a distorted H&S pattern but ultimately it came true)

Usually, the head should be formed on diminished volumes indicating the buyers aren't as aggressive as they once were.
The pattern is complete when the market breaks the neckline. (Volume should increase on the breakout.)
So the downtrend continues through out till some base is formed..

Pls check.. I dont think the necklines are correctly drawn.. The neckline is the bottoms of left & right shoulders.. not just support lines..

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