Technical & Chart AnalysisH and S
Head and Shoulders
A three-peak reversal pattern with a higher middle peak, completed when price closes beyond the neckline joining the intervening lows.
What Head and Shoulders means
The classic head and shoulders forms at the end of an advance. Price makes a peak, pulls back, makes a higher peak, pulls back again, then makes a third peak that fails to exceed the second. The two outer peaks are the shoulders, the middle and highest is the head, and a line drawn through the two intervening reaction lows is the neckline. The neckline may be horizontal or sloped. The pattern is considered complete only when price closes decisively below it, not merely on an intraday probe.
The conventional measured objective is the vertical distance from the head to the neckline, projected downward from the point where the neckline is broken. Many traders enter on the break, and others wait for a pullback that retests the broken neckline from below. Inverse head and shoulders is the bullish version at the end of a decline. The main limitations are subjectivity in drawing the neckline, the frequency with which apparent patterns never complete, and the fact that the measured move is a convention rather than a statistical guarantee.
Worked example
EUR/USD peaks at 1.0920, rises to a head at 1.0985, then a right shoulder at 1.0925, with the neckline near 1.0850. A close below 1.0850 gives a measured objective around 1.0715, that is 135 pips from head to neckline projected down.
Related terms
- Double TopA bearish reversal pattern of two peaks at roughly the same level, confirmed when price closes below the trough between them.
- TrendlineA straight line drawn along successive swing lows or highs to visualise the slope and boundary of a trend.
- BreakoutA move of price decisively through an established support, resistance or consolidation boundary.
- ResistanceA price area where selling interest has previously been strong enough to stop or reverse an advance.
- Technical AnalysisThe study of historical price and volume data, usually on charts, to form expectations about future price movement.
Frequently asked questions
What does Head and Shoulders mean in forex trading?
A three-peak reversal pattern with a higher middle peak, completed when price closes beyond the neckline joining the intervening lows.
How does Head and Shoulders work in practice?
The conventional measured objective is the vertical distance from the head to the neckline, projected downward from the point where the neckline is broken. Many traders enter on the break, and others wait for a pullback that retests the broken neckline from below. Inverse head and shoulders is the bullish version at the end of a decline. The main limitations are subjectivity in drawing the neckline, the frequency with which apparent patterns never complete, and the fact that the measured move is a convention rather than a statistical guarantee.
What is an example of Head and Shoulders?
EUR/USD peaks at 1.0920, rises to a head at 1.0985, then a right shoulder at 1.0925, with the neckline near 1.0850. A close below 1.0850 gives a measured objective around 1.0715, that is 135 pips from head to neckline projected down.
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