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Chart Pattern Analysis

figUre 13.2 V‐Top and V‐Bottom Formations.

head and shoulders top formation

A simple head and shoulders top formation is characterized by a peak represent-

ing the left shoulder, followed by a higher peak which is referred to as the head

of the formation. A lower peak representing the right shoulder is found on the

right‐hand side of the head. The head should be the highest peak in the formation.

The neckline is a trendline that connects the troughs that lie on either side of the

head. Necklines may be horizontal or inclined. A complex head and shoulders

formation consists of multiple left and right shoulders. Volume should ideally be

greatest at the left shoulder and gradually diminish at each subsequent peak as the

formation develops. Volume should start to increase as price breaks out from the

neckline, but should decline on the retest of it. In an inverted head and shoulders

formation (also referred to as a head and shoulders bottom), the head is the lowest

trough within the formation, but the volume action remains similar to that of a

figUre 13.3 V‐Top and V‐Bottom Formations.

Source: MetaTrader 4