As of 12/20/2024
Indus: 42,840 +498.02 +1.2%
Trans: 15,892 +32.54 +0.2%
Utils: 986 +14.76 +1.5%
Nasdaq: 19,573 +199.83 +1.0%
S&P 500: 5,931 +63.77 +1.1%
|
YTD
+13.7%
0.0%
+11.9%
+30.4%
+24.3%
|
 44,200 or 41,750 by 01/01/2025 16,100 or 17,700 by 01/01/20251,050 or 975 by 01/01/202520,500 or 19,300 by 01/01/20256,100 or 5,775 by 01/01/2025 |
As of 12/20/2024
Indus: 42,840 +498.02 +1.2%
Trans: 15,892 +32.54 +0.2%
Utils: 986 +14.76 +1.5%
Nasdaq: 19,573 +199.83 +1.0%
S&P 500: 5,931 +63.77 +1.1%
|
YTD
+13.7%
0.0%
+11.9%
+30.4%
+24.3%
| |
|
44,200 or 41,750 by 01/01/202516,100 or 17,700 by 01/01/20251,050 or 975 by 01/01/202520,500 or 19,300 by 01/01/20256,100 or 5,775 by 01/01/2025 | ||
Added trading lessons on 6/11/24.
For more information on this pattern, read Encyclopedia of Chart Patterns, 3rd Edition. If you click on the link and then buy the book (or anything) during the visit at Amazon.com, the referral will help support this site. Thanks.
$ $ $
A complex head-and-shoulders bottom is a chart pattern that looks like an inverted head-and-shoulders but with multiple heads, multiple shoulders, or sometimes both. The break even failure rate is low and the performance is good from this chart pattern.
The above numbers are based on 933 perfect trades. See the glossary for definitions.
| Characteristic | Discussion |
| Price trend | Downward leading to the pattern. |
| Shape | A head-and-shoulders bottom with multiple shoulders or multiple heads but rarely both. |
| Symmetry | The shoulders should bottom near the same price, be nearly the same distance from the head, and look similar to their mirror opposite. |
| Volume trend | Usually higher on the left side of the pattern. Trends downward 65% of the time. The link to the left gives an example and this link discusses performance. |
| Neckline | Joins the highest armpits. |
| Confirmation | The pattern confirms as a valid one when price closes above a down-sloping trendline or above the right armpit when the neckline slopes upward. |
Consult the associated figure on the right.
| Trading Tactic | Explanation |
The Measure Rule
|
| Measure rule | Compute the height from the head low (A) to the neckline (B) directly above then multiply it by the 'percentage meeting price target (see above "Important Bull Market Results").' Add the result to the breakout price (C). The breakout price is where price crosses a down-sloping neckline, or when the neckline slopes upward, use the peak of the right shoulder armpit. The figure to the right shows an example for a regular head-and-shoulders bottom. | |
| Price reversal | Price must have something to reverse, so if the decline leading to the pattern is small, expect a small rise. | |
| Confirmation | Wait for confirmation (breakout) before placing a trade. I show point C as the confirmation point in the figure. | |
| Neckline | Patterns with down-sloping necklines perform better. The green neckline on the chart to the upper right shows an example (Measure Rule figure). | |
| Yearly middle | Patterns having breakouts in the middle third of the yearly price range perform best. | |
| Volume trend | An upward volume trend suggests better post breakout performance. | |
| Throwbacks | Throwbacks hurt post breakout performance as the study discusses. | |
| Symmetry | Symmetrical looking patterns perform best (that is, the two outermost shoulders are the same or nearly the same distance from the head). |
The above figure shows an example of a complex head-and-shoulders bottom chart pattern. This complex head-and-shoulders has a dual head. Additional shoulders too far away to really be part of the chart pattern are located at A and B.
Price breaks out in August but quickly throws back (B). A throwback occurs 66% of the time in a bull market.
I present the information in slider format, so be sure to click the left or right arrows to view another slide.
Multi-peaks and complex head-and-shoulders bottoms appear to be particularly deadly. This is an example of a trading trap. After a multi-peak pattern (highlighted in red), a bullish complex head-and-shoulders bottom appears. The chart pattern breaks out upward (blue dot) and price rises a minor amount before reversing, ending in a failed trade.
Not all multi-peak patterns will fail, but the odds of success are diminished.
Overhead resistance, highlighted by the red line, sees price bump against that ceiling and turn down for a failed trade (meaning it didn't hit the measure rule target). The red circle is especially frightening, a solid block of resistance.
I like to see complex head-and-shoulders with nearly horizontal necklines. This complex head-and-shoulders looks flat (red line), like price will have a good footing to bounce higher. I show the neckline in green. Combined with minimal overhead resistance, the trade is a winner.
-- Thomas Bulkowski
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