A classic chart pattern that suggests a reversal after a rally.
A head and shoulder is named for what the chart pattern looks like. It starts with a left shoulder, which is followed by a higher price high, creating the head. Then a lower price high creates the right shoulder. Meanwhile, the downside support represents a neckline.
The pattern basically represents a failure to make a new high, and an ability to create a lower low, when the market breaks below the neckline. The break below a neckline then defines the head and shoulder and signals a reversal against the previous rally. A conventional target after a completion of this pattern is the distance between the head and and neckline in the direction of the breakout.
The opposite, or an inverse head and shoulder occurs as a bottoming signal, and is also known as the Kilroy pattern.
