How to use the "Head and Shoulders" pattern for cryptocurrency trading: a practical guide

What is the “Head and Shoulders” pattern?

In the world of crypto trading, the “Head and Shoulders” pattern is one of the most reliable trend reversal signals. It is easy to recognize: three peaks, where the middle (head) is higher than the two side (shoulders). Interestingly, this pattern can work in both directions - as a signal for a decline as well as for an increase.

Two types of pattern

Bearish version — when the price makes three local maxima with the highest in the middle. This is a signal to prepare for a decline.

Bearish version - when the price makes three local minima with the lowest in the middle. This is a signal to prepare for growth.

How to trade on this pattern?

The key point is the “neckline” (, a horizontal line connecting the bottoms of both shoulders ). When the price breaks this line, the pattern is activated.

Practical example:

• The price reached three peaks in the “Head and Shoulders” formation.
• The neck line is at the level of $100
• The difference between the head and the neck line = $10
• After the breakout, you expect the price to fall further to the level of $90$10

Trading Strategy:

1. A short position is opened after a break below the neckline.
2. The stop-loss is placed above the neckline.
3. The take-profit is set at the level calculated using the formula (head-shoulders difference)

Important warnings

The pattern does not work 100% of the time. It is a tool that provides probability, not a guarantee. Professionals always:

• Checking the pattern on multiple timeframes
• They combine it with other indicators
• Stop-loss must be used.
• They do not overtrade and wait for the best moments

Conclusion: “Head and shoulders” is a proven tactic for those who study the market seriously. But remember: technical analysis is an art plus science, not pure prediction.