HEAD AND SHOULDERSTHE FRACTURE MODEL “HEAD AND SHOULDERS”
The most well-known and, thus, the most convenient fracture model is H&S. Let’s review it in details, as other models appear its variations.
This key fracture model, as well as others, is a direct logical continuation and development of those statements connected with the tendency, which were discussed. Imagine a situation
when at the main ascending trend, successively increasing peaks and recessions gradually begin, which is called "slow down". As a result, the period of stagnation begins in the dynamics of the upward trend. At this time, the demand and supply on the market are practically balanced. When this distribution phase is completed, the support level that runs along the lower boundary of the horizontal "trade corridor" is broken. This is when a downward tendency emerges. It is formed accordingly by successive downward peaks and downturns.
An example of the “head and shoulders” model for the peak of the market. The left and the right shoulders (A and E) are located on the same height approximately. The head (C) is higher than both shoulders. Pay attention that every next peak is accompanied by a decline in trade. The model is considered as completed when the closing price is fixed below the "neck" line (line 2). The minimum price point is equal to the vertical distance from the head to the neckline, which is laid down from the point of breakthrough of the neckline. With the subsequent rise, it is possible to return to the level of the neckline, but prices cannot cross it.
The price benchmark for the realization of this pattern can be determined by measuring the length from the highest point to the neckline and laying this distance after the breakout. But it should be noted that it will be a minimal price benchmark, as the reversal figure indicates a change in the trend, the beginning of the market pendulum move in the opposite direction, respectively, the goals can be equal to the entire length of the trend which was refracted.
