Head and shoulder formations

Head and shoulder formations are the most reliable formations. They bear this name because they consist of a Kurstop with at least one lower top to the left and right.

The left and right tops, the two shoulders, should be approximately the same height. At the same time, a price bottom forms between the left shoulder and the head and between the head and the right shoulder. If you connect these two lows, you get the so-called neck line.

If this neckline is broken, the head and shoulders formation is complete and a very strong downward movement begins. It is quite possible that the neckline will be tested again, i.e. it is a resistance line. However, this normally only means a delay in the downward movement.

If there are further lower price stops to the left of the left shoulder or to the right of the right shoulder, this is also referred to as a multiple head and shoulders formation, which is often referred to as an (inverted) soup bowl. At this point at the latest, you should be alarmed and think about exiting the share or the market. Although this formation is relatively rare, it is very safe. It was particularly pronounced in most German blue chips before the Kuwait crash in August 1990.