One of the most famous, and with it the most reliable figures, which can form the charts, is considered a model of "head and shoulders". Its main feature - the three that follow one another price rise.
Shown on the above scheme, the uptrend continues to develop at point A to form a new price high. After a small decline to the level of point B, the price resumes its growth reached another peak at C. The price starts to decline rapidly, and, stopping at the point D, breaks the uptrend line. This fact proves only one thing, the trend rise compromised and its further extension is under great threat.
After that, the charts once again goes up, the price level rises to the point E, and about half of the previous recession. The presence of the upward trend recorded only if the peak of each successive peaks on the graph will be higher than the previous.
Since the point E is well below previous highs with the trader can fix a number of conditions conducive to the emergence of a drop-down trend with a 50% probability. Schedule is determined by the direction of flowing peaks and at point D minimum.
Once the trend line has been broken there is the possibility of downstream through C, E and D. However, the pronounced downward trend has not been observed. You can only be sure that trend growth lost ground, giving way to the horizontal direction of motion graphics. Appropriate in this situation is the closure of long positions, but with the opening of new, short, experts advise to wait.
The trend line has a more gentle slope and carried out through a minimum, and D is called the "neckline". Small rise in the direction of the most popular peaks its direction, sometimes the "neck" is horizontal, and even more rarely lurches toward lows.
Confirms the full completion of the formation of the model "head - shoulders" closing price, to break through "the neck" and fixed at F. The new trend line is broken, the broken since the level of support is in the mark D. Now we can see a clear tendency to decrease, which is formed by the highs and lows are gradually coming down. They are presented in the graph points C, D, E, F.
After the completion of the formation of the model in most cases schedule goes in the opposite direction, reaching a new high level of "neck line" or the size of the previous recession. This point is marked in Figure 1 with the letter G.
Once the schedule can not break through the neckline, very high likelihood of falling to a new low. This level is marked on the chart by the letter H, and the distance to that point in the language of traders called "target price."