Head and Shoulders

A head and shoulders is a chart pattern that looks like a person's head between two shoulders—three peaks where the middle one is tallest. Technical analysts (traders who study price charts) watch for this pattern because it often signals a stock price is about to drop. You'll see it mentioned in trading forums and analysis videos because many traders believe it's a reliable warning sign. The pattern forms when a stock rises, pulls back, rises higher, pulls back again, then rises one more time but not as high as before—creating that distinctive three-bump shape. For example, if TechCorp stock climbed to $50, fell to $45, jumped to $60, dropped to $45 again, then only reached $55 before falling, that could be a head and shoulders pattern.