I noticed that many traders still get confused by the classic head and shoulders pattern, even though it is one of the most reliable reversal signals. Let’s look at how it works in practice.

The structure is quite simple if you understand the logic. After an uptrend, a local maximum forms—this is the left shoulder. Then the price rises even higher, creating a higher point—the head itself. And then comes the right shoulder, which is usually slightly lower than the head. Between these three peaks, a neckline is drawn at the bottom, connecting the two lows. It can be horizontal or slightly slanted.

How to recognize the head and shoulders pattern on a chart? First, it forms only in an uptrend, so look for it on rising assets. You need to clearly see three highs and two lows along the neckline. Pay attention to the volume—it usually decreases during the formation of the right shoulder, but increases sharply when the breakout occurs.

In trading, the head and shoulders pattern works as a signal to enter a short. When the price breaks below the neckline, it means the downtrend has begun. Many people open a sell exactly at this moment. It’s best to place the stop-loss slightly above the right shoulder to protect yourself from false breakouts.

To calculate the target price, measure the distance from the top of the head to the neckline, and then project that distance downward from the breakout point. You get an approximate level where the decline may stop.

Trading requires discipline—always follow risk management and don’t enter a position without a clear exit plan. On BTC, this pattern works often enough if you identify it correctly.