Buzzword of the Week: Head and Shoulders Pattern

Here’s a buzzword (courtesy of Investopedia) that I had not heard before, a Head and Shoulders PatternHeadandShoulder_050906. That is a technical analysis term used to describe a chart formation in which a stock’s price:

  1. Rises to a peak and subsequently declines.
  2. Then, the price rises above the former peak and again declines.
  3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head.

The “head-and-shoulders” pattern is believed to be one of the most reliable trend-reversal patterns.

 

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