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The line chart pattern appears to be shoulder, head(with high top) and a shoulder formation is called as head and shoulder. Head and shoulder mainly happens during the distribution or accumulation of stocks from strong hands.
Condition for bearish trend
Shoulder, tallest head, shoulder formation with 3 months duration.
Volume is high at left shoulder and low at the right shoulder.
Head and Shoulder is a technical analysis term used to describe the chart formation in which the stock price,
1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.
The first and third peaks are shoulders, and the second peak forms the head.
Conditions to determine the Bearish Trend :
Left shoulder -> Price rise followed by a left price peak, followed by a decline.
Head -> Price rise again forming a higher peak.
Right shoulder -> A decline occurs once again, followed by a rise forming the right peak which is lower than the head.
A trade can be initiated after the pattern is complete and a short position can be created once the right shoulder moves downward breaking the neck line with significant volume.
*Note : Formations are rarely perfect, i.e, there may be some noise between the respective shoulders and head.
Head and shoulder is a distribution pattern
Conditions:
should have significant rally before the pattern
l. shoulder should have high volume
head is highest
duration of each pattern (shoulder, head, shoulder) is 1 month
r.shoulder volume is low
short position in the neck line.
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