Recently, I've seen quite a few discussions about the classic reversal pattern, the Head and Shoulders Bottom. I think it's necessary to talk about it, especially the failure signals that are easily overlooked.

The Head and Shoulders Bottom is indeed a golden signal for a bottom reversal, but only if you truly understand it. This pattern consists of three lows: the left shoulder is a rebound after the first sharp decline, with insufficient buying pressure forming a small low. Then comes the head, which drops again to create a new low, accompanied by a surge in volume—that's the last frenzy of the bears. Finally, the right shoulder, where the third decline stalls, and during the rebound, volume clearly increases. This is the real signal that the bulls are launching a counterattack.

But there's a key point many people overlook—breaking the neckline (the line connecting the high points of the left shoulder and the head's rebound) is the true signal. I often see people rushing to enter the market before the neckline is broken, only to get trapped.

In practice, I usually look at three things. First, volume: increasing volume during the head's decline indicates that the bear's selling pressure is nearing its end, and a breakout with high volume confirms that the bulls' main force is truly entering. Second, wait for a retest: after breaking the neckline, a slight pullback to retest the neckline is an opportunity to enter again; don't chase high at this point. Lastly, measure the price target: the vertical distance from the lowest point of the head to the neckline is the minimum expected rise target.

However, I want to point out that failures of the Head and Shoulders Bottom are quite common, so you need to be cautious. Fake breakouts are the most dangerous—if the price quickly falls back after breaking the neckline, it’s a trap set by the main players to lure in longs, so you should exit quickly. Another failure pattern is when the low of the right shoulder is lower than the head, invalidating the pattern—absolutely don't buy the dip in that case. Also, watch out for volume traps: if volume shrinks during a breakout, it’s a sign of a false move designed to dump shares, and you should withdraw immediately.

In summary, the failure of the Head and Shoulders Bottom often comes down to not paying attention to these details. The pattern itself isn’t the problem; the issue is rushing into trades or not understanding the signals deeply enough during execution.