Recently, I revisited classic technical analysis patterns and remembered the head and shoulders trading pattern — one of the most reliable trend reversal signals. I decided to share it because many beginners overlook it.

It all starts simply: you see an uptrend, and three consecutive highs begin to form on the chart. The first is the left shoulder, then the price pulls back, then it goes higher — this is the head, and finally the third peak, which is usually slightly below the head — the right shoulder. Between these peaks, two dips form, connected by the so-called neckline. It can be horizontal or slightly inclined, but that’s not so important.

When I look for such a structure, I pay attention to the volume — usually during the formation of the right shoulder, trading quiets down, but as soon as the price breaks through the neckline, the volume sharply increases. This is a very important signal. The head and shoulders trading pattern works precisely because it reflects a natural change in market sentiment.

I practically use the pattern as follows: I wait until the price clearly breaks below the neckline — this is my signal to enter a short position. I place the stop-loss slightly above the right shoulder to filter out false breakouts. I determine the target price using a simple method: I take the distance from the top of the head to the neckline and project this same distance downward from the breakout point.

Honestly, the head and shoulders trading pattern is one of the patterns I trust the most. The main thing is not to forget about risk management and not to get caught by false signals. This is especially noticeable on BTC when such a structure forms on daily charts. It’s worth paying closer attention, and then the pattern really works.