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published in Blogs
Nov 30, 2021
Identifying Head-and-Shoulders Patterns In Stock Charts

Identifying Head-and-Shoulders Patterns In Stock Charts

The bullish head and shoulders are 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.

 


 

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.

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 maybe 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.

For example, if Tickeron’s AI is asked to detect all head-and-shoulders bullish patterns with a 60%+ confidence level and a greater than 5% distance to the target price (potential profit), then the user would discover that Tickeron’s AI has discovered 3,029 confirmed patterns meeting that criteria, having searched about 4000 stocks, around 10,000 ETFs, hundreds of FOREX and cryptocurrencies. 

 

 

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.

If you’ve never seen technology like this before, it’s because it has never been available to retail investors in this format. The idea is to provide retail investors with technology and tools to enable trading with massive amounts of data and analysis. The end result is arming retail investors with a high-powered, virtual research assistant: Tickeron’s Artificial Intelligence.

Click the link to see statistics for other confidence levels and distance to the target (potential profit) for this patternhttps://tickeron.com/app/patterns/patterns/pattern/13

We invite you to check out our other premium products — they’ll help you be best prepared to take on the market. Some of the premium products that might be helpful for a new trader are the A.I. Pattern Search Engine and the A.I. Trend Prediction Engine. For a continuing trader, A.I. Real Time Patterns and our Screener are great ways to pinpoint what you’re looking for and monitor the securities for an extended period. 

Related Tickers: AAPL