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

The name of this formation is given after its shape. This formation looks like a head and shoulders. It consists of three consecutive rallies all based in the same support line named neckline. The two shoulders should be almost equal on height and head should be the highest. You may enter the market during retest of broken neckline. The most significant head and shoulders pattern is in weekly or monthly or daily charts. Head and shoulders on lower time frame are unreliable. Price target is the length between top of head and neckline

Head and Shoulders Pattern Could Lead to More Losses

Market trends eventually reverse. Sometimes those changes in trend occur with little or no warning and other times the market telegraphs a signal that changes may be imminent. One of the most important signals we look for are head and shoulders reversal patterns. One of these appeared recently on the S&P 500, which may mean serious declines in the near term for stocks and other changes in related markets.