A head and shoulder formation is a rebound formation that is formed in an uptrend. A head and shoulder formation consists of a left shoulder, a head and a right shoulder.
The head in a head and shoulder formation, the middle top, is higher than both the left shoulder and the right shoulder. There must be declining volume during the formation of a head and shoulder pattern. A horizontal trend line are drawn from the lowest levels in a head and shoulder formation.
The price target for a head and shoulder formation is the distance between the horizontal trend line and the top level of the head measured downward from the horizontal trend line. A sell signal for a head and shoulder formation is given when the horizontal trend line is crossed with decreasing volume.
