Head and Shoulders Pattern Scanner

Stocks that just finished a head and shoulders or an inverse head and shoulders. Many traders treat the regular pattern as a sign an uptrend is tiring, and the inverse as a sign a downtrend is ending.

Spotting the pattern by eye is slow and easy to second-guess. The alert uses fixed rules, so the same shape gets the same answer every time.

The alert works from five turning points: a high, a low, a higher high (the head), a low near the first low, and a final high near the first high. Each "near" means about the same price, so the shoulders and the two dips under them have to line up.

When the fifth point prints, the alert fires with all five prices in its description. That gives you the neckline (the two lows) and the head without drawing a thing.

The inverse alert reads the same five points upside down: a low, a high, a lower low, a high near the first high, and a low near the first low.

• Left shoulder: a high, then a pullback.
• Head: a higher high, then a pullback near the first one.
• Right shoulder: a lower high near the left shoulder.
• Neckline: the line through the two pullback lows. A break under it is the trigger many traders wait for.

1. In TI Pro, open a Streaming Alerts window with both alerts.
2. Add Relative Volume (RV), Price and Dollar Volume filters.
3. Optional: add Change From 50 Day SMA (%) to see where the pattern sits in the bigger trend.
4. Save and turn on sound.

Neckline trades. Wait for the neckline to break before acting.

Targets. Some measure the head-to-neckline height and project it from the break.

Stops. Above the right shoulder for the regular pattern, below it for the inverse.

The inverse pattern has three lows: a low, a lower low, then a higher low near the first one. The neckline runs across the highs between them. Many traders read a break above that neckline as a downtrend ending.

The pattern can form over minutes or weeks. The alert uses each stock's turning points, so check the chart to see how big the pattern is before acting on it. Larger patterns with more volume tend to get more attention.

Traders often look for volume to fall from the left shoulder to the right, then pick up on the neckline break. Add Relative Volume (RV) to see the volume on the break.

The double bottom scanner and the triangle pattern scanner cover other turning-point patterns.

1. A stock rallies, pulls back, rallies to a higher high, and pulls back again near the first low.
2. It tries once more but stalls below the higher high. That is the right shoulder.
3. The fifth turning point sets, and GHAS fires with the prices in the description.
4. Traders who use this pattern watch the neckline, the line under the two pullback lows. A break under it on volume is the trigger many wait for.

Because the alert reads turning points as they print, it finds the pattern during the session. Intraday patterns form and break faster, and they need tighter stops.

The inverse version is a bottom: three lows, with the middle one lowest. Inverted Head and Shoulders (GHASI) finds it. It fires on the same turning point logic as the top, and the neckline sits across the two highs between the lows. A break above that neckline is the signal bullish traders wait for.

• The neckline joins the two pullback points between the shoulders.
• Many traders wait for a close past the neckline, not just a touch.
• In a top, volume is usually highest on the left shoulder and the head, and lighter on the right shoulder.
• Use Relative Volume (RV) on the break: a neckline break on light volume is easier to undo.

The classic target takes the distance from the head to the neckline and projects it from the breakout point. Thomas Bulkowski’s research found that price reached the full measured target only about half the time (51% for tops in bull markets), so he scales the target by that percentage.

Example numbers, not a real trade

1. Head at $60, neckline at $54: height $6.
2. Break of the neckline at $54.
3. Full target $48. Scaled at 51%, about $50.94.

In Bulkowski’s study of more than 2,800 head-and-shoulders tops on daily charts in bull markets, measured on ideal trades (no commissions, perfect entries), the break-even failure rate was 19%, the average decline after the breakout was 16%, and price pulled back to the neckline 68% of the time. Source: Bulkowski on Head-and-Shoulders Tops, thepatternsite.com (statistics updated 8/26/2020). These are daily chart results; intraday patterns found by the alert have not been measured the same way.

The head and shoulders alerts have a filter for how many trading hours the pattern took to form. A short setting finds patterns that built over an hour or two of the session. A long setting, such as 20 hours or more, finds patterns that took several days. Shorter patterns fire more and need tighter stops.

Most traders turn on Head and Shoulders (GHAS) and Inverted Head and Shoulders (GHASI) in the same window and color them differently. On a day when tops outnumber bottoms across the list, the market is leaning one way.

• The rise into the pattern was real. Bulkowski notes a pattern needs something to reverse; a small run before it tends to give a small drop after.
• The shoulders are close in price and in time from the head.
• The neckline is clear, and you know where it is before price gets there.
• Volume on the right shoulder is lighter than on the left.
• You wait for the break, not the right shoulder alone.
• There is a plan if price breaks the neckline and then pulls back to it, which his study found in most cases.

Head and shoulders window

The pattern fails often. Price can rally right back through the neckline.

Small patterns on 1 minute charts mean little. Watch the size.

Test your rules in a simulated account first.