Head and Shoulders, Double Tops, Double Bottoms
Head and shoulders, double tops, double bottoms. The classics for a reason.
Researched and written by Laurent Head and Shoulders
The most famous reversal pattern in technical analysis. It forms after an uptrend and signals a potential reversal to downtrend.
The neckline connects the two troughs between the shoulders and head. When price breaks and closes below the neckline, the pattern is confirmed. The target is roughly the distance from the head to the neckline, projected below.
Double Top and Double Bottom
Simpler versions. Price tests the same level twice and fails. Like tweezer patterns but on a larger scale.
Two peaks at the same level. Break below the trough = confirmed. Target: depth of the pattern below neckline.
Two troughs at the same level. Break above the peak = confirmed. Target: depth of the pattern above neckline.
Why These Patterns Work
At a double top: buyers tried to push higher twice and failed both times. When price falls below the trough between the two peaks, all the traders who bought near the tops are now losing money. Many sell simultaneously, causing the break to accelerate.
Key Takeaways
- • Head and shoulders: three peaks with the middle one highest. Signals trend reversal from up to down.
- • Inverse head and shoulders: three troughs with the middle one lowest. Reversal from down to up.
- • Double top: two peaks at the same level. Reversal from up to down.
- • Double bottom: two troughs at the same level. Reversal from down to up.