Below is a slider quiz to test your ability to identify head-and-shoulders tops and trade them. Captions appear below the pictures in red for guidance, so be sure to scroll down far enough to read them.
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We covered head-and-shoulders bottoms -- simple and complex -- in prior quizzes. Let's talk about head-and-shoulders tops (HST) now. The chart shows a HST on the daily scale.
LS is the left shoulder, H is the head, and RS is the right shoulder. A sloping red neckline (A) connects the armpits. If the neckline slopes downward, use a horizontal line starting from the
right armpit as the pattern confirmation line, the line where squiggles on the chart become a valid chart pattern. When price closes below the line, that's the breakout. Volume for HSTs is
usually highest on the left shoulder followed by the head and diminished on the right shoulder. This example shows the highest volume on the head. The measure rule for HSTs is complex. It's
the vertical distance from the peak at the head (H) to the neckline directly below (the circle at A), subtracted from the breakout price (B). The breakout price is where price pierces the neckline.
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Find as many head-and-shoulders tops as you can, plus a double top. For help, click here.
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From the left, FF is a double top, confirmed when price closes below G. C is a head-and-shoulders top with neckline D. Price doesn't drop much, to E. L-H-R is another HST, with two necklines. Since
the traditional neckline drops (green), use the horizontal line A as confirmation and a trading signal.
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Find as many head-and-shoulders tops as you can, plus a double bottom.
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This complicated chart shows the patterns. BB is the double bottom but it might not look like one. Why? Because price enters the pattern from the bottom, C. The pattern
becomes valid when price closes above line D. The other three are head-and-shoulders tops. The HST at A has broken out downward. How far will price drop, to green line 1, 2, 3, or 4?
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As the chart shows, line 2 was the correct answer.
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