* Left shoulder: A peak in the chart, forming the first high point.
* Head: A higher peak, forming a higher high point.
* Right shoulder: A third peak, roughly equal to the left shoulder's height.
The neckline is drawn by connecting the low points between the peaks, and it acts as a support level. When the neckline breaks, it's a sign that the trend is reversing.
There are two types:
* Head and Shoulders Top: Indicates a bearish reversal.
* Head and Shoulders Bottom: Indicates a bullish reversal.
Remember, chart patterns are just tools to help identify potential trend changes. Always combine them with other technical and fundamental analysis to make informed trading decisions!
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