Head and Shoulders Pattern, Neckline and Target

What it shows

A coloured line through the seven swing points, a dotted neckline, a light fill, and labels for the Left Shoulder, Head and Right Shoulder. After the breakout a dotted target line runs to a Target label.

How Pravex works it out

1. First come the swings, taken from at most the last 600 candles. A high qualifies when it sits above the 5 highs to its left and no lower than the 5 highs to its right; a low qualifies the opposite way. The 5 candles on the right are why every swing arrives 5 candles after the fact. The list is then thinned so highs and lows take turns, keeping the more extreme point wherever two of a kind meet.
2. Take six alternating swings in a row: a low (where the lead-in leg starts), the left shoulder, a low, the head, a low and the right shoulder. The neckline is the line through the two lows around the head and may slope.
3. Head height is the head’s distance above the neckline. The head must be higher than both shoulders. Each shoulder must sit above the neckline but by no more than 95% of the head height, the shoulders may differ by no more than half the head height, and the two neckline lows may differ by no more than half the head height. The climb into the left shoulder, measured from the first low, needs at least the Lead-in strength share of the head’s height, and that first low must be under the neckline.
4. Breakout: the first candle after the right shoulder that closes under the neckline. Target: the neckline’s price at the end of the pattern minus the head height. Failure level: the right shoulder’s high; a high above it before the break drops the shape.
5. The status starts as Awaiting at the breakout. It turns to Reached when price trades at the target, to Failed when price trades through the failure level first, and to Indefinable when a single candle covers both, since its high and low alone cannot say which came first.

Settings

Setting	Default	What changing it does
Which patterns to keep	All	Picks what stays visible. All is the full list. Awaiting and Reached keeps patterns that are live or hit their target. Only Awaiting keeps the live ones. Last Awaiting keeps just the most recent live one, so the chart shows one pattern at most.
Where targets are drawn	Only Awaiting	Chooses which statuses show a target line: All, Only Awaiting, Awaiting and Reached, or None. While a pattern is Awaiting its target keeps the pattern’s colour; after that it takes the colour of its status.
Lead-in strength	50	How strong the move into the left shoulder must be, as a percent of the head’s height above the neckline. At 50 the leg from the first low to the left shoulder must cover at least half of it. Raise it to demand a clearer uptrend first.
Show unconfirmed patterns	off	On adds patterns that have not broken out yet. Their final leg is dotted and ends at the highest high or lowest low since the last confirmed swing, so it changes with every new candle; the target shown is the one a breakout would give. Off keeps only patterns with a close through the breakout line.

How traders read it

The usual story is an uptrend losing strength: a new high (the head), then a lower high (the right shoulder), and a close under the neckline as confirmation. Pravex projects the head height down from the neckline for the target.

To see the arithmetic (figures invented), the head is at 120 and the neckline is flat at 100, so the head height is 20. A candle closes under 100 and the target is 80. Shoulders near 112 sit under the 95% cap, which is 119.

When it misleads

The shoulder and neckline tolerances are fixed at half the head height, so loose shapes that you would call a head and shoulders by eye may be skipped, and some tidy-looking ones pass that a purist would reject. Failure is most likely after a sharp trend, when price recovers right back above the right shoulder. A swing that is still forming never goes into a pattern, but finished patterns can still be revised. A later high above the last swing high (or low under the last swing low) replaces it and can drop the shape, and the newest candle’s close is not final until the candle ends.

Questions and answers

How does Pravex decide the head is the head?

The middle peak must be above both shoulders, and each shoulder must be at most 95% as tall as the head measured from the neckline.

Can the neckline slope?

Yes. It is the line through the two lows beside the head, as long as those lows differ by no more than half the head height.

Where is the head and shoulders target?

One head height below the neckline, taken at the end of the pattern where the last leg crosses the neckline.

What makes a head and shoulders Failed?

A high above the right shoulder after the neckline break. If it comes before any close under the neckline, the shape is dropped.

Related: Inverted Head and Shoulders Chart Pattern, Double Top Chart Pattern, Triple Top Chart Pattern, All Chart Patterns, every indicator.