Head and Shoulders Pattern

A conventional reversal shape following a prior trend. The neckline break and target remain hypotheses whose conditional outcomes must be measured.

Pattern Structure

H&S (Bearish Reversal)

1. Left Shoulder — Rally to new high, pullback
2. Head — Higher high than left shoulder, pullback
3. Right Shoulder — Lower high than head, starts to drop
4. Neckline — Connect the two pullback lows

Inverse H&S (Bullish Reversal)

1. Left Shoulder — Drop to new low, bounce
2. Head — Lower low, bounce
3. Right Shoulder — Higher low, starts to rise
4. Neckline — Connect the two bounce highs

Workflow

1. Get Exact Data

get_candles_around_date(symbol=<symbol>, exchange=<exchange>, interval=<interval>, date=<head_date>)

2. Mark Structure Points (3 parallel highlight calls)

draw_chart_analysis(action="create", drawing={
    "type": "highlight",
    "points": [{"time": <ls_time>, "price": <ls_price>}],
    "options": {"text": "LS"}
})

draw_chart_analysis(action="create", drawing={
    "type": "highlight",
    "points": [{"time": <head_time>, "price": <head_price>}],
    "options": {"text": "Head"}
})

draw_chart_analysis(action="create", drawing={
    "type": "highlight",
    "points": [{"time": <rs_time>, "price": <rs_price>}],
    "options": {"text": "RS"}
})

3. Draw Neckline

draw_chart_analysis(action="create", drawing={
    "type": "support",
    "points": [
        {"time": <neckline_left_time>, "price": <neckline_left_price>},
        {"time": <neckline_right_time>, "price": <neckline_right_price>}
    ],
    "options": {"text": "Neckline"}
})

For inverse H&S, use "resistance" instead of "support".

4. Enter

Standard: Enter on neckline break + close with volume. Stop above right shoulder. Preferred: Wait for neckline break, then retest. Enter on rejection. Tighter stop. Target: Head-to-neckline distance projected from break point.

Evidence and Validation

• Treat the setup as a testable hypothesis, not a prediction. Define thresholds, entry, invalidation, and exit before evaluating outcomes.
• Calibrate on the same instrument, venue, session, and timeframe. Use closed candles and a held-out or walk-forward sample; record every variant tried.
• Include spread, fees, slippage, borrow or funding, partial fills, and latency. Reject the setup when net expectancy is not positive or depends on one narrow parameter.
• Return observed inputs, missing data, cost assumptions, entry, invalidation, exit, and a valid, watch, or no-trade status.
• Research basis: Lo, Mamaysky & Wang studied algorithmic head-and-shoulders recognition and found conditional information in some samples, not a guaranteed reversal.

Key Rules

• NEVER trade before neckline break — pattern incomplete until confirmed
• Volume differences are contextual and do not validate the pattern without a neckline break
• Must have a prior trend to reverse; H&S in a range is invalid
• Record shoulder-height asymmetry rather than assuming a lower right shoulder always increases expectancy

Related Skills

• double-top-bottom — Similar reversal family
• multi-timeframe-analysis — HTF H&S signals major reversals