![]() Volume: The volume increases during the upward formation of the initial shoulder, then diminishing as the price drops exiting the left shoulder.Measuring: Take the distance between the first low to the top of the head, then subtract that amount from the neckline on the breakout.Breakout confirmation: The confirmation for this pattern is when there is a close below the lower trendline drawn horizontally across the intervening low with above-average volume.This fierce combination can trigger a powerful downward move that eliminates any chance of the stock returning to the previous support level. This decrease in price, along with an increase in volume indicates an increase in supply. Is here the support breaks indicating a new willingness for the stock or index to sell to lower prices. Then, in a final move, the stock or index will rise again, but to only the level of the first peak of the formation, here is where it will travel back down to the baseline for the final time. It will then rise above the former peak to form the head, and then once again drop back to the base level. The head and shoulders top pattern takes shape when a stock or index is price rises to a peak and then suddenly declines back to the base of the prior move. Understanding the Head and Shoulders Top Pattern This will provide you with a significant advantage over other investors that might not be able to predict an oncoming downturn in time. Buying at the bottom, then waiting for the “head” to appear, will give you the chance to profit from this market trend before it turns bear. Selling your stock at the point where the “nose” has reached its peak would be an excellent idea, especially if you bought your stock at one of those points at the base of the pattern. If you become very good at reading this pattern, you can immediately see the advantage an investor can have. ![]() This last downward tick is usually significant because it is at this point where the bull turns to bear. Once again, there will be an upward tick that reaches about the same level at the first spike with a subsequent fall back downward. Then the stock will once again move upward, but this time it will surpass the prior spike and form what is called the “nose,” and then it will once again move back down to the point preceding the upswing. This head and shoulders top pattern happens when a stock rises to its peak and then drops back down to the point preceding the move upward.
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