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.
✳️ Formation Context
- Forms after a sustained uptrend, as buying strength starts to weaken gradually
- Structure completes when the right shoulder forms and price breaks the neckline
- Commonly appears during market distribution phases before a reversal begins
🔷 Characteristics
- Left Shoulder forms a peak followed by a minor decline
- Head is the highest point, exceeding both shoulders
- Right Shoulder is a lower peak, mirroring the left shoulder
- Neckline connects the lows between shoulders and acts as key support
- Volume decreases progressively from left shoulder to right shoulder
🌐 Market Condition
- Most effective in equity markets, major indices, and commodities
- Works best in liquid instruments and during trend reversal zones
🎯 Trading Strategy
- Entry Point: Sell when price breaks below the neckline with increased volume
- Stop-loss: Above the right shoulder high to limit upside risk
- Target Price: Subtract the height from head to neckline from the breakdown point