Bear markets are the perfect time to study and accumulate strength; a large reserve of knowledge can definitely help you shine in the next market cycle.

Today, we will learn about the Head and Shoulders Top pattern.

Almost every long-term chart shows a Head and Shoulders Top trend, making it particularly important for technical analysts. The buy and sell signals generated by this pattern are quite reliable and have strong predictive power for future market movements. Key technical terms include left shoulder, head, right shoulder, neckline, retest, and others. Additionally, trading volume plays a special role in this pattern.

Left shoulder: When the price starts rising from a low point, trading volume significantly increases. During the pullback, volume often does not shrink noticeably. This phase belongs to the high-volume area within the entire pattern, indicating that the market bulls expect prices to rise further, leading to heavy buying. Meanwhile, bears take profits at high levels. Because of the large participation of bulls and the rapid switching between bullish and bearish roles, the selling bears may feel they have misjudged and switch to buying, while profit-taking bulls turn into bears. The battle between bulls and bears is intense, making volume difficult to quickly decline. During this process, the bulls gradually weaken while the bears begin to counterattack, forming the left shoulder and the left neckline of the Head and Shoulders Top pattern.

Head: Afterwards, the bulls regain control, and the price rises again, surpassing the height of the left shoulder. However, since most bullish investors have already bought earlier, subsequent buying is limited. As the price continues to rise, the strength of the bears increases again. Some of the original bullish investors, having gained substantial profits, switch to selling at this point. The increased selling pressure causes the price to peak and then fall, forming the highest point in this pattern. The price declines from the high, finding support near the left neckline. This forms the head and the support level of the right neckline.

Right shoulder: After a sharp rise, the accumulated bearish strength begins to dominate, forming the head of the pattern. However, the bullish momentum has not exhausted. When the price falls back near the previous support level, it is supported again by buying from bulls, causing it to rise once more. Although the current price is lower than the previous high, it remains relatively high. Market-sensitive traders who missed the previous two peaks may sell heavily at this stage. The market conditions are now different; many investors start to lose confidence in the future trend, leading to increased selling and reduced buying. Trading volume shrinks significantly compared to earlier, and the price cannot reach the previous high before falling back. This forms the right shoulder. When such a pattern appears over a longer-term trend, it indicates that the Head and Shoulders Top is likely to complete.

Note: In theory, a standard Head and Shoulders Top pattern should have roughly symmetrical shoulders. However, in practice, the left and right shoulders are often asymmetrical. Empirical data shows that if the right shoulder is higher than the left, the market is usually not bad; if the right shoulder is lower than the left, the subsequent trend may be less favorable.

Neckline: In the entire Head and Shoulders Top pattern, the straight line connecting the lows between the shoulders and the head is called the neckline. Viewing the pattern as a human figure, the head and shoulders form a structure, and this line resembles the neck of a person, hence the name. In practice, the neckline can be horizontal or inclined. When the price breaks below this line, it confirms the pattern has been broken, often leading to a sharp decline in the stock price afterward.

Retest: After the price breaks below the neckline support, it indicates that all investors who bought above the pattern are now trapped. The overall sentiment of holders worsens, increasing selling pressure at higher prices. The neckline, which previously served as support, now acts as resistance (meaning those who bought at lower prices are now trapped and may sell at the first opportunity). If the stock price rebounds, it usually rises to near the extension of the neckline—this is called a retest. This often becomes the last selling opportunity for investors, after which the stock may sharply decline.

The minimum decline after a price breaks through the neckline in a Head and Shoulders Top pattern is equal to the vertical distance from the head to the neckline. In other words, only after this minimum decline is completed can a reversal and upward movement be expected. Mastering this measurement helps investors avoid rushing to buy at lows.

On a daily chart, BTC's price movement has formed a Head and Shoulders Top pattern, with the right shoulder lower than the left, indicating an extreme trend ahead. The 82,000 level was during the retest phase, touching the neckline resistance, representing the last chance to escape. Subsequently, an extreme decline occurred. Based on the predicted decline mentioned above, the price could fall to at least 40k, where the downward momentum would be mostly exhausted. Therefore, it may be wise to consider accumulating #BTC below 40k.