Welcome To Our Hawley Advisors Blog

We hope you find the articles on our blog informative and helpful. You are always welcome to chat with us if you have any questions about your personal financial situation.

What is a Head & Shoulders Pattern?

In this installment of our technical patterns education series, we will explore what is known as a "Head and Shoulders" pattern. This pattern can signal a shift in trend whether at the top of a price discovery trend or at the bottom (when it is referred to as an "inverse head and shoulders bottom" pattern).

As the name suggests, a head and shoulder pattern comprises of left shoulder that corrects only to move higher to form the "head" typically the highest price point in the prevailing price trend (or the lowest price point in the case of an "inverted head and shoulder bottom pattern" after which it will correct while only to rally again but not as high as the previous "head". This point marks a trend reversal, down in the case of a traditional head and shoulder pattern and up in the case of an inverted head and shoulders bottom pattern.

The chart to the left provides a classic example of a head and shoulders pattern whereas the chart below of Cisco in 2000-2001 shows how these can play out in real markets.

It is not always easy to idenitfy head and shoulders patterns. Sometimes they do not play out in exactly the traditional text book way. These pattern can also play out or seem to be playing out in the midst of any rising or declining trend when the actual top or bottom of the market has yet to occurr. As a result your entry or exit points can be erroneous.

As we mention in all these educational pieces it is best to use technical analysis in concert with multiple signals to increase your probability of being right in your determination of a market. Timing market cycles is hard which means in addition to your forecasting methodology, you need to have expert asset allocation and stop loss disciplines in place to manage the inevitable wins and losses no matter what timeframe you are investing or trading in.

 

 

China, Evergrande and The Boom & Bust Cycles of Ca...
A Window into Institutional Adoption of Digital Cu...

Main Menu

The Hawley Communique

Sign up for free to receive our signature quarterly reports.Not only will they keep you informed, you will get a unique and up to date objective financial perspective to navigate your pre and post retirement. You will also receive our retirement planning article series that provides helpful information about a variety of topics.

Subscribe Here

Hawley Advisor Publications

Download our free marquis papers written to provide valuable and actionable information to help you plan for your retirement and asset protection

Download Here

Company Info

Hawley Advisors
1600 South Main Street, Suite 190
Walnut Creek, CA 94596
Phone: 925-906-9800
Fax: 925-906-9884
info@hawleyadvisors.com

 

 

Hawley Advisors is an investment advisor, registered with the State of California. Any investment ideas or strategies on this website are for the purposes of education and general information only and should not be construed as specific investment advice. For more information about our firm please check the SEC Public Disclosure website: https://www.adviserinfo.sec.gov/

 

Copyright © 2021 Hawley Advisors. All rights reserved.