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Technical Analysis- Head and Shoulders

The head and shoulders trend occurs when the price of a security increases to a new peak, then falls shortly, then rises again to a higher peak, falls again shortly, then rises to a peak that is not quite as high as the previous peak. The middle, highest peak is the head, and the two lower peaks are the shoulders as shown below. This trend will show an ending to a uptrend and a beginning to a downtrend and therefor is bearish in nature.

The inverse head and shoulders trend occurs when the price of a security decreases to a low trough, rises, the decreases further, then increases slightly in intervals. This marks a new uptrend and possibly a decent time to buy. When security prices follow a trend then reverse, many times they will bump back up near a maximum or down near a minimum. This action is known as the resistance level. Resistance levels are detailed in another article.

Trend analysis
Support and Resistance Levels
Head and Shoulders Formation

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