Head and Shoulders
In simple terms
A chart pattern that looks like a person's head and shoulders, where the price goes up, peaks higher, then goes up again but not as high. This shape is often a signal that the price is about to drop.
Definition
Bearish reversal pattern with three peaks, the middle being the highest.
In depth
A technical analysis pattern consisting of three consecutive peaks in price action: two outer shoulders of similar height and a higher central peak, formed over a period of consolidation and distribution. The pattern completes when price breaks below the neckline (the support level connecting the two troughs between the peaks), signaling capitulation by buyers and typically triggering sell-offs as traders exit long positions and shorters enter. Confirmation requires volume analysis, with selling pressure intensifying on the neckline breakdown to validate the bearish reversal.
How does Head and Shoulders work?
Price makes a high (the left shoulder), pulls back, then pushes to a higher high (the head) and pulls back again to roughly the same level. A third rally stalls near the first peak's height, forming the right shoulder. Drawing a line through the two pullback lows gives the neckline. Chartists treat the pattern as complete only when price closes below that neckline; the distance from the head down to the neckline is often projected downward as a rough reference. Volume frequently thins across each successive peak. The shape describes what already happened and predicts nothing on its own.
An example
An illustrative coin trades near $40, rises to $50, falls back to $44, climbs to $56, drops to $43, then rallies only to $49 before turning down. The neckline sits around $43. A close below $43 would complete the pattern, and the head-to-neckline distance of $13 gives a rough $30 downside reference. These are made-up figures, and price can just as easily move back above the neckline instead.
Figures are illustrative only.
What beginners get wrong
- Calling the pattern before the neckline breaks is the most common error; an unbroken neckline means there is no completed pattern yet.
- The measured move is a rough reference rather than a destination, and price often stops well short of it or overshoots entirely.
- Real charts rarely produce symmetrical shoulders, so forcing a tidy outline onto messy price data invents patterns that were never there.
- Failed head and shoulders formations are common, and a break that reverses can produce losses larger than the chart appeared to suggest.
Related terms
Part of
What is technical analysis, and how are crypto charts read? — the subject page for technical analysis, with all 29 of its definitions in one place.
Educational only — not financial advice.