The head and shoulders top has three peaks: left shoulder, head (highest peak), and right shoulder (lower than the head). The lows between the three peaks form the neckline; a breakdown below the neckline confirms the pattern — the classic top reversal.
Progressive exhaustion of bullish momentum. The head makes a new high but the right shoulder fails to follow, showing weakening buying pressure. Breaking the neckline triggers widespread stop-loss selling.
Enter short on a high-volume breakdown below the neckline (win rate 74%). Stop-loss above the right shoulder's high. Target = head-to-neckline distance measured down from the breakdown.
The right shoulder's volume is typically lower than the left shoulder's — an important confirmation. The neckline can be horizontal or slightly angled; a downward-sloping neckline is stronger.