The head and shoulders is widely considered one of the most reliable reversal patterns in all of technical analysis. It forms at the top of an uptrend and consists of three peaks — a higher central peak (the head) flanked by two lower peaks (the shoulders). The pattern reflects a classic shift from distribution to selling.
The left shoulder forms as buyers push price to a new high, then pull back. The head forms when buyers make one more push to a higher high — but notice the rally is running out of conviction. The right shoulder is the critical tell: buyers try again but cannot reach the head level. The trend is losing momentum at the top. When the neckline breaks, it confirms the smart money has distributed their positions and the trend has reversed.
Key insight: The most common mistake is entering too early — at the right shoulder rather than the neckline break. The right shoulder alone does not confirm anything. Price can always make another push higher. Wait for the neckline break and the volume confirmation before committing.
The other half is what’s happening in your head when you’re in the trade. Fear, ego, revenge trading, breaking your own stops — that’s where most accounts actually lose money. Not bad setups.