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Oct 20, 2018
Head and Shoulders Pattern Explained

Head and Shoulders Pattern Explained

Of all of the patterns, perhaps the easiest one to spot is the head and shoulders pattern.

This is a bearish pattern, but there is also an inverse pattern which is bullish.

The pattern has five points to it. There is the left shoulder, the left side visit to the neckline area, the head, the right side visit to the neckline, and the right shoulder.

As you can see, it looks like somewhat like the outline of a human from behind. The stock is on the rise and then it cycles lower as investors take some profits. That temporary high forms the left shoulder.

After a brief pullback, investors start buying again and the next upward cycle starts. That brief pullback and the temporary low create the left side of the neck. The next cycle higher moves above the first high and forms the head. Once again investors decide to take some profits off the table and the next downward cycle takes the stock back down to form the right side of the neck.

Investors see the temporary pullback as a buying opportunity and drive the stock higher once again, but the stock doesn’t have enough momentum to get as high as the head. This third high is near the same level as the first high and forms the right shoulder.

Because the momentum wasn’t enough to carry it to a new high, there is more momentum to the downside and the stock moves below the neckline. At the point where the stock moves below the neckline, that is the confirmation point of a bearish head and shoulders pattern. The probability for the downside momentum to continue is pretty high at this point.

The Bullish Head and Shoulders

The inverse or bullish head and shoulders is the opposite image of a bearish head and shoulders. It has all the same parts—two shoulders, a neckline, and the head. Only instead of the shoulders and head being formed at high points for the stock, they are formed at low points.

The investor psychology is the opposite of the bearish pattern. The stock is falling and hits a temporary low to form the left shoulder before a bounce occurs and forms the left side of the neck. The upward momentum is temporary and the next down leg takes the stock lower than the left shoulder and forms the head.

Investors jump in thinking the new low is a buying opportunity but then start taking profits after a decent run up to the neckline. The profit-taking creates the next down leg, but investors start buying on this third down leg before it gets down to the previous low. This forms the right shoulder and starts the next upward move.

Now, the momentum is to the upside and the buying pressure sends the stock above the neckline. At this point, the pattern is confirmed. After breaking above the neckline, the upward momentum is likely to continue and the stock price keeps moving higher.

In Real Chart Examples, the Pattern Isn’t Perfectly Symmetrical

With the drawings, the patterns are drawn perfectly symmetrical so they are easier to explain and recognize. However, on real charts the pattern is very rarely symmetrical. Sometimes the neckline will have a little slope to it and one shoulder may be a little lower or higher than the other.

Here is an example of a bullish head and shoulders pattern that was spotted by the Tickeron Pattern Search Engine on Apple.

The first shoulder is formed in mid-August with the first trip to the neckline coming at the end of August. The head forms on September 25 and then the stock moves up to form the right side of the neck. Another slight dip around October 20 forms the right shoulder and then the stock moves sharply higher and moves all the way up above $173 from the $160 area.

Because the patterns aren’t symmetrical, sometimes they can be difficult to spot. That’s why an artificial intelligence program like Tickeron’s Pattern Search Engine is so valuable. It can find the patterns easier than the human eye and give subscribers more opportunities.

Tickeron’s AI technology has confirmed over 33,000 head and shoulders patterns over the years and the number of successful trades was over 19,000. This is a winning percentage of approximately 58%.

Even more impressive than the 58% accuracy rate is the average return on the successful readings. The average return was 12.05% on the successful trade ideas while the average loss on the unsuccessful trade ideas was only 6.57%.

With that success rate and with the average return on successful readings being so much better, investors could have a tremendous advantage. The Tickeron Pattern Search Engine can help investors find trading opportunities with the touch of a button.

To see how Tickeron’s AI can help you find head and shoulders patterns and 36 other patterns, sign up for a 45-day free trial today.

Related Ticker: AAPL

Contributor

Harry Richardson — Algorithmic Trader & Strategy Developer Harry is an algorithmic trader specializing in impulse and breakout trading strategies across cryptocurrency and equity markets. With more than 10 years of experience in developing automated trading systems, he focuses on building structured algorithms designed to capture momentum while maintaining strict risk control. His approach combines quantitative analysis, real-market execution, and continuous performance monitoring. Vitalii prioritizes risk management, drawdown control, and strategy stability over short-term optimization, ensuring algorithms are adaptable to changing market conditions. He has developed and tested hundreds of automated strategies, working extensively with live trading environments, forward testing, and portfolio-level algorithm management. His work centers on transforming trading ideas into fully operational, scalable automated systems.


Momentum Indicator for AAPL turns positive, indicating new upward trend

AAPL saw its Momentum Indicator move above the 0 level on August 24, 2026. This is an indication that the stock could be shifting in to a new upward move. Traders may want to consider buying the stock or buying call options. Tickeron's A.I.dvisor looked at 64 similar instances where the indicator turned positive. In 45 of the 64 cases, the stock moved higher in the following days. The odds of a move higher are at 70%.

Price Prediction Chart

Technical Analysis (Indicators)

Bullish Trend Analysis

The Moving Average Convergence Divergence (MACD) for AAPL just turned positive on August 26, 2026. Looking at past instances where AAPL's MACD turned positive, the stock continued to rise in 30 of 46 cases over the following month. The odds of a continued upward trend are 65%.

AAPL moved above its 50-day moving average on September 10, 2026 date and that indicates a change from a downward trend to an upward trend.

The 10-day moving average for AAPL crossed bullishly above the 50-day moving average on August 28, 2026. This indicates that the trend has shifted higher and could be considered a buy signal. In 11 of 18 past instances when the 10-day crossed above the 50-day, the stock continued to move higher over the following month. The odds of a continued upward trend are 61%.

Following a +5.37% 3-day Advance, the price is estimated to grow further. Considering data from situations where AAPL advanced for three days, in 231 of 353 cases, the price rose further within the following month. The odds of a continued upward trend are 65%.

The Aroon Indicator entered an Uptrend today. In 201 of 305 cases where AAPL Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are 66%.

Bearish Trend Analysis

The Stochastic Oscillator may be shifting from an upward trend to a downward trend. In 31 of 62 cases where AAPL's Stochastic Oscillator exited the overbought zone, the price fell further within the following month. The odds of a continued downward trend are 50%.

Following a 3-day decline, the stock is projected to fall further. Considering past instances where AAPL declined for three days, the price rose further in 50 of 62 cases within the following month. The odds of a continued downward trend are 57%.

AAPL broke above its upper Bollinger Band on September 01, 2026. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.

Fundamental Analysis (Ratings)

The Tickeron SMR rating for this company is 11 (best 1 - 100 worst), indicating very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.

The Tickeron Price Growth Rating for this company is 12 (best 1 - 100 worst), indicating outstanding price growth. AAPL’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.

The Tickeron Profit vs. Risk Rating rating for this company is 19 (best 1 - 100 worst), indicating low risk on high returns. The average Profit vs. Risk Rating rating for the industry is 94, placing this stock better than average.

The Tickeron PE Growth Rating for this company is 31 (best 1 - 100 worst), pointing to outstanding earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.

The Tickeron Valuation Rating of 86 (best 1 - 100 worst) indicates that the company is significantly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: AAPL's P/B Ratio (45.045) is very high in comparison to the industry average of (5.994). P/E Ratio (38.104) is within average values for comparable stocks, (115.156). AAPL's Projected Growth (PEG Ratio) (2.607) is slightly higher than the industry average of (1.418). Dividend Yield (0.003) settles around the average of (4.670) among similar stocks. P/S Ratio (10.515) is also within normal values, averaging (4.373).

Notable companies

The most notable companies in this group are Apple (NASDAQ:AAPL), GoPro (NASDAQ:GPRO).

Industry description

Computer peripherals connect to a computer system to add functionality or to get information from or put information into computers. Think hard disk drive, data storage systems, cloud storage devices, printer and scanner, or mouse, keyboard etc. Some of the major companies operating in the computer peripherals industry include Western Digital Corporation, Seagate Technology PLC, NetApp, Inc., Zebra Technologies Corporation, and Xerox Holdings Corp.

Market Cap

The average market capitalization across the Computer Peripherals Industry is 262.79B. The market cap for tickers in the group ranges from 1.2K to 4.85T. AAPL holds the highest valuation in this group at 4.85T. The lowest valued company is DPSM at 1.2K.

High and low price notable news

The average weekly price growth across all stocks in the Computer Peripherals Industry was -4%. For the same Industry, the average monthly price growth was -3%, and the average quarterly price growth was -10%. RIME experienced the highest price growth at 12%, while GMEX experienced the biggest fall at -35%.

Volume

The average weekly volume growth across all stocks in the Computer Peripherals Industry was -77%. For the same stocks of the Industry, the average monthly volume growth was -27% and the average quarterly volume growth was -3%

Fundamental Analysis Ratings

The average fundamental analysis ratings, where 1 is best and 100 is worst, are as follows

Valuation Rating: 46
P/E Growth Rating: 58
Price Growth Rating: 63
SMR Rating: 84
Profit Risk Rating: 93
Seasonality Score: -25 (-100 ... +100)
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General Information

a manufacturer of mobile communication, media devices, personal computers, and portable digital music players

Industry ComputerPeripherals

Profile
Details
Industry
Telecommunications Equipment
Address
One Apple Park Way
Phone
+1 408 996-1010
Employees
166000
Web
https://www.apple.com
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