If you trade for a long time, you've probably encountered the head and shoulders pattern.

It is one of the most reliable reversal signals after an uptrend, and today I will explain how to correctly recognize and use it.

The pattern structure is quite simple.
First, after an increase, a local maximum forms — this is the left shoulder.
Then the price pulls back slightly, and then rises even higher, creating the head of the pattern.
After that, there is a pullback and the formation of the right shoulder, which is usually slightly lower than the left.
All three peaks are connected by a horizontal or slightly inclined neckline line, which passes through the lows between them.

How do I see this on charts?
I look for assets that are in a strong uptrend.
The head and shoulders pattern forms exactly there.
You need to make sure you have all three maxima and two minima along the neckline line.
Pay attention to volume — it usually decreases during the formation of the right shoulder, but sharply increases at the breakout of the neckline.
This is a very important signal.

What’s next?
When the price breaks below the neckline, it almost always indicates the start of a downtrend.
Many traders enter short positions at this moment.
It’s better to place a stop-loss slightly above the right shoulder to protect against false breakouts.

To determine the target price, I use a simple method:
measure the distance from the top of the head to the neckline, and then project this same distance downward from the breakout point.
This gives an approximate level where the price might fall.

The head and shoulders pattern doesn’t always work perfectly, so always remember risk management.
Don’t risk more than you’re willing to lose, and always use stop-losses.
Good luck trading!