What Is the Head and Shoulders Pattern?

The head and shoulders pattern in technical analysis signifies a potential reversal from a bullish to a bearish trend. This formation is characterized by three peaks: the central peak, referred to as the “head,” and two flanking peaks of similar height, known as the “shoulders.” As the pattern develops, a stock’s price climbs to a peak, drops back to its prior base, advances to a higher peak (the ‘head’), and then retreats once more before reaching a final peak at the initial shoulder level. This structure signals that an upward trend might be ending.