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The head-and-shoulders chart pattern is a popular and easy-to-spot pattern. As a rule it is most often seen in uptrends and most reliable when found in an uptrend as well. The Head and shoulders formation occurs when a market trend is in the process of reversal either from a bullish or bearish trend.
The head and shoulders pattern is found after an uptrend or downtrend. It often indicates a change in market direction when the neckline of the pattern is penetrated. As a result the market will move the same distance above the neckline as the distance between the neckline and the peak of the head. This situation is perfect for sell operations.
In an uptrend the situation when the right shoulder level is lower than the left one indicates a strong signal for upcoming downtrend. In a downtrend head and shoulders formation indicates a strong signal for the price rise. If the right shoulder level is higher than the left one, the signal for the uptrend becomes even stronger.
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