A Bullish Flag is a short-term continuation pattern that appears after a strong price rally…
Head and Shoulders
A three-peak formation where the middle peak (head) is the highest, while the side peaks (shoulders) are lower. This pattern signals a potential trend reversal from an uptrend to a downtrend. It forms after a strong bullish trend, and a breakout below the neckline support confirms the shift to bearish momentum.
Significance
- Suggests that buyers are losing control, and sellers are taking over.
- Often forms at the end of an uptrend, signaling the start of a downtrend.
- A breakout below the neckline confirms the bearish reversal, providing a strong shorting opportunity.


Characteristics
- Three peaks, with the head being the highest and the shoulders forming at similar levels.
- The neckline acts as a support level; a breakdown below it confirms the pattern.
- Volume generally declines during formation and increases significantly on breakdown.
Market Condition
- Found at the end of a bullish trend, signaling a shift in market sentiment.
- More reliable in high-volume stocks or indices, where institutional selling pressure is visible.
Trading Strategy
- Entry point – Short when price breaks below the neckline with strong volume.
- Stop-loss – Above the right shoulder to limit risk.
- Target price – Measure the head-to-neckline distance and subtract it from the breakdown level.