Technical Analysis Plain and Simple: Charting the Markets in Your Language, Second Edition

Head and Shoulders Standard

Most technical patterns can be applied to up and down markets with equal reliability. Here the example is a rising market. In 1995, the wheat market (Figure 20.6) was making a series of higher highs and higher lows, a classic indication of a bull market. In August, the market made a low at about the same level as the previous low and also failed to rally back to a new high. This failure to make a higher high is the first indication that a head and shoulders reversal pattern is in progress. To review, the highest high is called the “head” and the two peaks on either side are called the “shoulders.” A line connecting the corresponding lows is called the “neckline” and provides support for the pattern.

Figure 20.6. ...