Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski’s Complex Head-and-Shoulders Top

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P500 (^GSPC):

As of 09/23/2016

18,261 -131.01 -0.7%

7,937 -26.13 -0.3%

694 -2.05 -0.3%

5,306 -33.77 -0.6%

2,165 -12.49 -0.6%

YTD

4.8%

5.7%

20.1%

6.0%

5.9%

Tom's Targets Overview: 09/15/2016

17,800 or 18,600 by 10/01/2016

8,275 or 7,500 by 10/01/2016

710 or 650 by 10/01/2016

5,400 or 5,100 by 10/01/2016

2,080 or 2,225 by 10/01/2016

Test Portfolios and CPI

Indus strength: -1.1%

Mutt Losers: 2.9%

Mutt Winners: 5.5%

CPI:

on 9/19/16

For more information on this pattern, read Encyclopedia of Chart Patterns Second Edition, pictured on the right, pages 421 to 437. That chapter gives a complete review of the chart pattern, compared to what is described below.

If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski

$ $ $

Complex head-and-shoulders tops are strong performers in a bull market, showing a small break even failure rate and large average decline if traded perfectly. Pullbacks occur almost two thirds of the time, so anticipate them happening.

Important Results

Identification Guidelines

Trading Tips

Example

Other Examples

Important Bull Market Results for Complex Head-and-Shoulders Top

Overall performance rank (1 is best): 3 out of 21

Break even failure rate: 4%

Average decline: 23%

Pullback rate: 67%

Percentage meeting price target: 53%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Complex Head-and-Shoulders Top Identification Guidelines

Characteristic	Discussion
Price trend	Upward leading to the pattern.
Shape	A head-and-shoulders top with multiple shoulders or multiple heads, but rarely both.
Symmetry	The shoulders should peak near the same price, be nearly the same distance from the head, and look similar (both wide or both narrow peaks) compared to their mirror opposite.
Volume	Usually higher on the left side of the pattern.
Neckline	Joins the lowest armpits and is often nearly horizontal. Rarely does it slope steeply.
Confirmation	The pattern confirms as valid when price closes below an up-sloping neckline or below the right armpit when the neckline slopes downward.

Complex Head-and-Shoulders Top Trading Tips

Consult the associated figure on the right.

Trading Tactic	Explanation
Measure rule	Compute the height from the highest head (A) to the neckline directly below (B) and then multiply it by the "percentage meeting price target" (see "Important Bull Market Results") before subtracting it from the breakout price (C). The breakout price is where price crosses an up-sloping neckline, or when the neckline slopes downward, use the right shoulder armpit. The figure to the right shows an example, but uses a head-and-shoulders top.
Price reversal	Price must have something to reverse, so if the rise leading to the pattern is small, expect a small decline.
Confirmation	Wait for confirmation before placing a trade.
Trends	A short-term rise leading to the pattern results in the best post breakout performance.
Price velocity	A high velocity rise leading to the pattern often results in a larger decline post breakout. The link to the left explores this.
Inner H&S	If the pattern shows an inner head-and-shoulders top, then trade it. The figure to the right shows an example.
Neckline	Patterns with near horizontal necklines perform best.
Yearly middle	Patterns in the middle third of the yearly price range perform best (this may change with more study samples).
Volume trend	An upward volume trend suggests better post breakout performance. The link to the left defines this while this link explains performance.
Pullbacks	Pullbacks hurt post breakout performance. The link to the left defines terms while this link explains performance details.
Symmetry	Patterns with an extended right shoulder perform worse. Symmetrical looking patterns also perform worse.

The measure rule for complex head-and-shoulder top chart patterns

The Measure Rule

An inner set of head-and-shoulders top chart patterns

Inner Head & Shoulders

Complex Head-and-Shoulders Top Example

Adam & Adam double top chart pattern example

The figure on the right shows an example of a complex head-and-shoulders top chart pattern. This example has two left shoulders (LS), and two right shoulders (RS). The blue neckline is not very steep but if you use that as the standard breakout method, where price closes below a down-sloping neckline, it will be at a lower price than if you use the right shoulder armpit low (the dashed red line). The neckline, incidentally, joins the lowest low (armpit) to the left of the head with the lowest low (armpit) to the right of the head.

Notice how price at B returns to the launch point, A. This often occurs when price moves up quickly leading to the chart pattern -- a decline takes price nearly back to the staring price.

-- Thomas Bulkowski

Bulkowski’s Complex Head-and-Shoulders Top

Important Bull Market Results for Complex Head-and-Shoulders Top

Complex Head-and-Shoulders Top Identification Guidelines

Complex Head-and-Shoulders Top Trading Tips

Complex Head-and-Shoulders Top Example

Other Complex Head-and-Shoulders Top Examples

See Also