What is head and shoulder pattern?

A head and shoulders pattern is a chart pattern that is commonly used in technical analysis to identify potential sell signals. It is formed by a series of three peaks, with the middle peak being the highest and the two outside peaks being lower. The pattern is thought to be a bearish reversal pattern because it indicates that the security's price may be reaching a resistance level and may be unable to break through to higher levels. When the price falls below the neckline (a horizontal line drawn through the lows of the two outside peaks), it may signal that the uptrend has reversed and that the security is now in a downtrend.

The head and shoulders pattern is typically considered a bearish reversal pattern because it follows an uptrend and is thought to indicate that the security's price may be reaching a resistance level and may be unable to continue its upward trend. If the price falls below the neckline and continues to fall, it may confirm a downtrend.

It is important to note that the head and shoulders pattern is not a guarantee that the price of a security will fall. It is simply a pattern that may suggest a potential trend reversal and should be used in conjunction with other technical and fundamental analysis tools to confirm a sell signal. In addition, head and shoulders patterns can be subject to interpretation and may be influenced by the biases and expectations of the analyst. As a result, different analysts may come to different conclusions about the same data.