Head and Shoulders Top

The Head and Shoulders Top refers to a price pattern that appears after a significant price increase, forming three distinct peaks, with the middle peak slightly higher than the two on the sides. The three peaks are referred to from left to right as the left shoulder, head, and right shoulder.

The characteristics of the Head and Shoulders Top are as follows:

1. It appears during an uptrend, featuring three peaks, with the tops of the two side peaks approximately at the same horizontal level, and the middle peak clearly higher than the side peaks.

2. The low points of the first two pullbacks are generally the same, while the final pullback breaks below the trendline connecting the first two low points and closes below it.

3. During the formation of the Head and Shoulders Top, trading volume decreases sequentially.

4. After breaking below the neckline, there is often a pullback action, which meets resistance near the neckline and falls back, confirming the validity of the downward breakout.

5. In actual price movements, there might be two left shoulders or two right shoulders, which are considered variations of the Head and Shoulders Top pattern.

When investors encounter the Head and Shoulders Top pattern, how can they find the best selling point?

1. The first selling point occurs when the price falls back from the third peak and breaks below the neckline, indicating that the Head and Shoulders Top pattern has formed. It is advisable to take profit and stop loss in a timely manner to secure profits.

2. If the first selling point is missed, the price may experience a significant decline in the short term. In this case, do not rush to cut losses; usually, the Head and Shoulders Top pattern will show a pullback to the neckline. When the price pulls back to the neckline, seize the last opportunity and do not be overly optimistic, thinking the price will continue to rise; otherwise, larger losses may occur.