Head and Shoulders

It is usually associated to the end of a rising tendency and to the possible beginning of a falling tendency. It can be defined as the succession of three points that are at the maximum related. The second of them is usually higher than the first, and the third, lower than the second.

The line of the neck is the one who joins the lowest point of descent of the first shoulder with the lowest point of descent of the head.

Interpretation:
It is recommended to wait until the dropping of the second shoulder surpasses in a 3% or 5% the line of the neck to have a confirmation.

The minimum distance that the price will go before completing this figure will be equal to the distance between the superior part of the head and the neckline. In spite of all, the drop on the price is usually higher.

At the end of the rising tendency, whose weakness is noted by the first maximum (left shoulder), that marks the price, these begin to lower down in a correcting movement. This could be an indicator that the levels reached are beginning to be considered excessive for the market.

If the figure of the head and shoulder permits an anticipation of a drop, the same figure but inverted, favors the anticipation of risings at the end of dropping phases.

It consists in the succession of three minimum consecutives, where the second is much lower than the first, and the third, is higher than the second.

As in the former case, the rise that has to happen at the end of the figure will be minimum as equal to the distance between the neckline and the inferior part of the head.

Again, the key to interpret this figure is in the rupture of the neckline.

Hedges
It’s the graphic formation of prices, which acquire the form of a triangle joining the successive risings and falls by the means of two converging lines. In difference with other triangles, the two lines that can be treated go in the same direction.

Interpretation: the prices will follow the opposite direction to that which the hedge points.

The hedges are usually followed by a descent in the volume during its formation, but once completed the figure, the volume usually increases.

We can distinguish two types of hedges:

• Ascending hedges: they point out falling tendencies
• Descending hedges: They point rising tendencies

At the interpretation of the hedges you have to have in account in what phase of the market they are produced. If a descendent hedge takes place in an intermediate phase of a rising tendency, it means that the price will continue to rise   once the hedge is completed. On the other hand, if it’s produced at the end of a falling tendency, it is very probable that the market will begin a rising tendency.

With hedges, the quotations continue in an opposite direction to that of the end of the hedges.

Beginner Money Investing Chart Patterns Interpretation Double and Triple Floors Head and Shoulders Triangles Graphics Flags and Pennants Figures