The characteristics of the head and shoulders pattern are as follows:
1. It appears in an uptrend, featuring three peaks, with the left and right peaks generally at the same horizontal level, while the middle peak is significantly higher than the two side peaks.
2. The low points of the first two pullbacks are essentially the same, while the final pullback breaks below the line connecting the first two low points and closes beneath it.
3. During the formation of the head and shoulders pattern, the trading volume successively decreases.
4. After breaking the neckline, there is often a pullback action, where it is blocked and falls back near the neckline, confirming that the downward breakout is valid.
5. In actual price movements, it is possible to have two left shoulders or two right shoulders, which are considered variations of the head and shoulders pattern.
When investors encounter the head and shoulders pattern, how can they find the best selling point?
1. The first selling point is when the price falls back from the third peak and breaks below the neckline, indicating that the head and shoulders pattern has formed, and one should promptly take profit or stop loss to preserve their gains.
2. If the first selling point is missed, the price may experience a significant drop in the short term. In this case, do not rush to cut losses; generally, the head and shoulders pattern will show a pullback towards the neckline. When the price pulls back to the neckline, seize the last opportunity, and do not be overly optimistic thinking the price will continue to rise; otherwise, it may lead to greater losses.
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