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Head And Shoulders Pattern Failure

Patrick Stockdale
Written by Patrick Stockdale | May 21, 2022

What Is A Head And Shoulders Pattern Failure?

In technical analysis, a head and shoulders pattern failure, also known as a "failed head and shoulders pattern", is when the price chart of a market forms a head and shoulders pattern, the price attempts to break down and move below the neckline support area but fails to decline in price and instead reverses and moves higher.

A head and shoulders pattern is considered a failed head and shoulders when the price reverses from below the neckline support level to above the swing high of the right shoulder of the pattern.

Failed Head And Shoulders Pattern Components

Head and shoulders pattern failure components

In order to identify a head and shoulders pattern failure, there will need to be certain components on the price chart of a market.

The components of a failed head and shoulder pattern are:

  • A head and shoulders pattern: There will need to be a head and shoulders pattern visible on the price chart with a clear head, left shoulder, right shoulder and neckline area.
  • A price movement below the neckline: The price of the market should trade below the neckline support area. This is a trigger point for entering a short trade with the head and shoulder pattern.
  • A bullish price reversal from below the neckline price level to above the right shoulder: The price should fail to continue lower below the neckline. Instead, the price should reverse and move higher above the right shoulder level where the stop-loss orders are placed.

Once these components are visible, the pattern is considered a head and shoulders failure as it trapped short-sellers and stopped them out.

Head And Shoulder Chart Pattern Failure Examples

A head and shoulders pattern can fail in any market where it forms. Below are visual examples of failed head and shoulder chart patterns on the price charts of various markets.

Example Of A Failed Head And Shoulders Chart Pattern In The Stock Market

Head and shoulders pattern failure in the stock market

On the daily price chart of the S&P500 index, a head and shoulders pattern failed.

The price of the S&P500 index breaks below the neckline support level where traders entered short positions.

The price quickly reversed, turned bullish and traded up through the right shoulder, stopping traders out of their short trade positions in the process.

‍Example Of A Failed Head And Shoulders Pattern In Forex

Head and shoulders pattern failure in the forex market

On the price chart of USD/JPY currency pair above, a head and shoulders pattern failed.

The price of the currency pairs breaks below the neckline support level. Then, it reverses and turns bullish and trends higher.

This failed head and shoulders trapped short traders and stopped them out at the swing high of the right shoulder of the pattern.

Example Of A Failed Head And Shoulders Pattern On A Shorter Timeframe Price Chart

Head & Shoulders pattern failure short timeframe chart

On the shorter timeframe 15-minute price chart of Facebook stock, a head and shoulders pattern failed.

The price initially breaks down below the support level but does not hit the price target.

It reverses and the price starts to trend higher.

Head And Shoulders Pattern Failure Causes

There are a number of reasons a head and shoulders pattern can fail. The causes of failed head and shoulders patterns include:

  • News announcements can cause bullish reversals: If a news announcement is released after the price moves below the neckline, this can cause the price to reverse from bearish to bullish and cause the head and shoulders pattern to fail.
  • Illiquid markets: A head and shoulders pattern can fail because of poor liquidity. If there are very few sellers at the neckline area, all it takes is one big buy order to cause the price of a market to reverse and turn bullish and cause the head and shoulders pattern to fail.
  • Major support levels just below the neckline: If there is a major support level just below the neckline area, this can cause the price of the market to struggle to break down from the head and shoulders pattern. Instead, it can cause a bullish price reversal and mean the head and shoulders pattern failed.

How To Find Failed Head And Shoulders Chart Patterns

The methods to find a failed head and shoulders chart patterns are:

  • Manually browse through the price charts: A trader can manually browse through the price charts of a markets looking for a head and shoulders pattern and waiting to see will the price fail to break down and move lower.
  • Use a chart pattern scanner: A chart pattern scanner can help find failed head and shoulders pattern. A trader could simply search for head and shoulders pattern and then set price alerts for if the price will reach the right shoulder level. If the price is back at the right shoulder level, it indicates a head and shoulders pattern failure.

How To Trade A Head And Shoulders Pattern Failure

How to trade head and shoulders pattern failure

Some traders prefer to trade the head and shoulders pattern failure rather than trading a traditional head and shoulders pattern.

To trade a head and shoulders pattern failure:

  1. Wait for the price chart to form a head and shoulders pattern
  2. Wait for the price to break down below the neckline area
  3. Watch for the price to reverse and move above the right shoulder
  4. Enter a buy position once the price breaks out above the right shoulder
  5. Put a stop-loss at the previous swing low
  6. Set price target by taking the distance between the neckline and the head and adding that distance to the buy entry price at the right shoulder

Frequently Asked Questions About A Head And Shoulders Failure

Below are frequently asked questions about a failed head and shoulders pattern chart pattern.

Can A Head & Shoulders Pattern Fail?

Yes, a head and shoulders pattern can and will fail. A trader should be prepared for it.

Can A Trader Trade A Failed Head & Shoulders Pattern?

Yes, traders can sometimes use a failed head and shoulders pattern as a bullish signal. Typically, a trader will buy a failed head and shoulders pattern when the price moves back above the right shoulder of the pattern with a stop-loss at the previous swing low level.

Is A Failed Head And Shoulders Pattern Bullish Or Bearish?

A failed head and shoulders pattern is a bullish signal in the market as the price of the market was unable to break down and move lower from the head and shoulders pattern and instead, the pattern failed and the price moved higher in a bullish direction.

What Timeframe Of Price Charts Can A Head And Shoulders Pattern Fail?

A head and shoulders pattern can fail on any timeframe of price chart that it forms on from as low as a 1-minute price chart up to weekly or monthly price charts.