I've noticed that many traders still underestimate the classic head and shoulders pattern. Honestly, when you see it on a chart, it's one of the most reliable trend reversal signals.

I'll share how this pattern works. First, the price forms a local maximum—that's the left shoulder. Then there's a pullback, followed by the price rising higher and creating a higher peak—that's the head. After that, there's another pullback and the formation of the right shoulder, which is usually roughly at the same level as the left shoulder. All of this is connected by a neckline—either horizontal or slightly sloped.

When I look for such a formation, I primarily focus on an uptrend. Head and shoulders trading is about the pattern appearing when an asset has been rising for a long time and starts to lose momentum. On the chart, you need to see three clear highs and two lows along the neckline. Volume also plays a role—usually it decreases during the formation of the right shoulder but spikes sharply when the neckline is broken downward.

How to use this in trading? When the price breaks below the neckline—that's a signal to open a short position. Many traders enter a sell at this moment. It's better to place the stop-loss slightly above the right shoulder to protect against false breakouts—they happen.

For the target price, there's a simple method: measure the distance from the top of the head to the neckline, then project that same distance downward from the breakout point. That's your target. Head and shoulders trading requires precise calculation and discipline.

The most important thing is to remember risk management. Even if the pattern looks perfect, there's always a chance of a false signal. So never enter with a full position; always consider the risk-to-reward ratio. This pattern works especially well on BTC, so it's worth monitoring.