The "head and shoulders" pattern is an important signal in technical analysis, and it is important for investors to understand its characteristics and how to identify them.
The head and shoulders pattern consists of four parts: the left shoulder, the head, the right shoulder, and the neckline.
These three peaks represent three upward attempts in the market, of which the peak in the middle (head) is slightly higher than the high point of the other two peaks, forming a shape similar to a human head, and the peaks on the left and right sides are similar to shoulders, hence the name head and shoulders.
In the process of the formation of the head and shoulders top, the trading volume of the left shoulder is the largest, the trading volume of the head is slightly smaller, and the trading volume of the right shoulder is the smallest, and the trading volume is decreasing.
When the neckline is broken, it is not necessary to increase the trading volume to be trusted, if the trading volume surges when it is broken, it shows that the selling power of the market is very large, and the stock price will accelerate its decline when the trading volume increases.
A temporary rally (backdraw) may occur after a break below the neckline, which usually occurs when a low volume breaks. However, the temporary recovery should not exceed the neckline.
The head and shoulders is a very lethal pattern, and usually its drawdown is greater than the least measured drawdown.
A mid-yin line makes the neckline that many parties rely on to survive is broken, the stock price closes below the neckline, the head and shoulders top has been basically established, the market has come to this point, investors should understand the general trend, stop loss exit is the best choice at present.
The head and shoulders top is a peak signal, and once the head and shoulders top is officially formed, the decline of the stock price is almost a foregone conclusion.
Investors should pay attention to the following when operating in actual combat:
1) When a stock price forms a head and shoulders pattern, it is necessary to arouse a high degree of vigilance. At this time, although the stock price has not fallen below the neckline, you can sell some chips in your hand first, reduce the position, and once you find that the stock price has fallen below the neckline, you will sell all the remaining stocks in your hand and withdraw from the wait-and-see.
2) When rising, the volume should be increased, and the volume can be enlarged or reduced when falling, for the head and shoulders top of this pattern, it is common to first break the neckline with a small amount, and then reduce the volume, or even maintain a small amount to slide down. Investors must have a clear understanding of this.
3) The magnitude of the head and shoulders to multiple parties is proportional to the length of time it is formed.
Therefore, investors should not only care about the daily K-line chart, but also attach great importance to the head and shoulders of the weekly K-line chart and the monthly K-line chart; If the weekly K-line chart and the monthly K-line chart form a head and shoulders trend, it means that the medium and long-term trend of the stock has weakened, and the stock price will have a long-term downward trend.
4) There are two trends after the head and shoulders pattern breaks through the neckline, one is that there is a pullback after breaking through the neckline, and then there will be two obvious sells; The second is to break through the neckline and go all the way down, which is only one obvious selling point.
It is generally believed that the stock price cannot close above the neckline 3 days after breaking the neckline, and the head and shoulders pattern is truly established. However, when I saw that the head and shoulders top was really established, the stock price may have fallen a lot at that time, and the loss was much greater before it stopped losing and exited the market.
In conclusion, the head and shoulders top pattern is one of the important bearish signals in technical analysis; Investors should be proficient in its characteristics and identification methods so that they can be flexibly used in actual combat; At the same time, investors should also remain calm and rational, avoid being swayed by market sentiment, and make the right investment decisions.
Well, that's all for today's content sharing! Happy learning! See you next time!