What is a Head and Shoulders Pattern?

In this chart we see a very common head and shoulders pattern. It forms a right and left shoulder that are both lower than the head of the pattern, and the chart appears somewhat symmetrical. It has the entrance to the pattern coming from the bottom (it starts coming up not coming down.) This pattern is often a sign of a possible reversal, but is only a true signal when the price dips below the resistance line, which is yellow in this markup. When this decision happens, it can signal a bearish trend - and it is a common place to enter a short position. This is shown in this chart above where we see a 4-5% dip soon after the breakdown.