Head-and-Shoulders Bottom

As of 09/26/2023

Indus: 33,619 -388.00 -1.1%

Trans: 14,819 -282.19 -1.9%

Utils: 845 -24.76 -2.8%

Nasdaq: 13,064 -207.71 -1.6%

S&P 500: 4,274 -63.91 -1.5%

YTD

+1.4%

+10.7%

-12.7%

+24.8%

+11.3%

Targets Overview: 09/15/2023

34,500 or 33,150 by 10/15/2023

15,900 or 14,800 by 10/01/2023

880 or 800 by 10/15/2023

14,400 or 13,000 by 10/01/2023

4,425 or 4,175 by 10/15/2023

Chart Pattern Indicator:

on 9/15/23

As of 09/26/2023

Indus: 33,619 -388.00 -1.1%

Trans: 14,819 -282.19 -1.9%

Utils: 845 -24.76 -2.8%

Nasdaq: 13,064 -207.71 -1.6%

S&P 500: 4,274 -63.91 -1.5%

YTD

+1.4%

+10.7%

-12.7%

+24.8%

+11.3%

Targets Overview: 09/15/2023

34,500 or 33,150 by 10/15/2023

15,900 or 14,800 by 10/01/2023

880 or 800 by 10/15/2023

14,400 or 13,000 by 10/01/2023

4,425 or 4,175 by 10/15/2023

Chart Pattern Indicator:

on 9/15/23

Bulkowski on Head-and-Shoulders Bottoms

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Head-and-shoulders bottoms are reliable chart patterns that sport a low failure rate and good average rise.

Head-and-Shoulders Bottom: Important Bull Market Results

The above numbers are based on 3,197 perfect trades. See the glossary for definitions.

Head-and-Shoulders Bottom: Identification Guidelines

Characteristic	Discussion
Price trend	Downward leading to the pattern
Shape	A 3-valley pattern with the middle valley below the others. The pattern should look like an inverted person's head and shoulders, proportional, and not lopsided.
Symmetry	The two shoulders should bottom near the same price, be nearly the same distance from the head, and look similar (both wide or both narrow).
Volume	Highest on the left shoulder or head, diminished on the right shoulder. Trends downward 65% of the time.
Neckline	Joins the two armpits.
Confirmation	The pattern confirms as a valid one when price closes above a down-sloping neckline or above the right armpit when the neckline slopes upward.

Head-and-Shoulders Bottom: Trading Tips

Trading Tactic	Explanation	The Measure Rule Shoulder Valley
Measure rule	Compute the height from the head low (A) to the neckline directly above (B) and then multiply it by the "percentage meeting price target" (see above). Add it to the breakout price (C). The breakout price is where price crosses a down-sloping neckline, or when the neckline slopes upward, use the peak of the right shoulder armpit. See the Measure Rule figure to the right.
Price reversal	Price must have something to reverse, so if the decline leading to the pattern is small, expect a small rise.
Confirmation	Wait for confirmation before placing a trade. In the Measure Rule figure to the right, confirmation occurs at C.
Trends	A short-term drop (0-3 months) leading to the pattern results in the best postbreakout performance.
Neckline	Patterns with down-sloping necklines perform marginally better. The Measure Rule figure to the right shows an example of a head-and-shoulders bottom with a down-sloping neckline.
Shoulder	A higher left shoulder valley when compared to the right shoulder valley results in worse postbreakout performance. The Shoulder Valley figure to the right shows this comparison.
Throwbacks	Throwbacks hurt postbreakout performance.

Head-and-Shoulders Bottom: Example

The above figure shows an example of a Head-and-shoulders bottom chart pattern. The left shoulder (LS), head, and right shoulder (RS) form three consecutive valleys. Shoulder distance from the head is similar as is the price at which the two shoulders bottom. A blue neckline joins armpits A and (B). When price closes above the neckline at C, it confirms the head-and-shoulders bottom chart pattern as a valid one.

Head-and-Shoulders Bottom: Other Examples

Bulkowski on Head-and-Shoulders Bottoms