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HEAD AND SHOULDERS

investing wednesday word of the week Feb 26, 2020

Definition
The head and shoulders pattern in technical stock analysis is used to predict what the support level (lowest price it will potentially go before traders make it rise again) of a stock is.

Why It's Important
You probably saw this and wondered why I would be talking about a shampoo.  LOL!  This is one of many charting patterns that technical analysts use to make stock price predictions.  I will warn that this is an advanced investing topic so if it does not make sense, do not worry!  

‚ÄčAs you can see from the chart below, the trend looks like a head and two shoulders.  The "neckline" is a support level.  The stock price hit that level then bounced up.  Then, it hit it one more time and bounced up before breaking through the support and trending downwards.  

This same charting pattern can also happen in the opposite way as shown below.  In this scenario, the neckline shows the price ceiling instead of the support.  It is the same concept just reversed.

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