{"term":{"slug":"head-shoulders","term":"Head and Shoulders Pattern","definition":"A three-peak reversal pattern where the central peak (head) is higher than the two flanking peaks (shoulders). The neckline connecting the two troughs is the key level -- a break below (or above for inverse) signals a trend reversal.","extendedExplanation":"The head and shoulders is one of the most reliable reversal patterns in technical analysis, with decades of academic and practitioner research supporting its predictive validity. The pattern forms at the end of an uptrend: a rally to a new high (left shoulder), a higher rally (head), a lower rally that fails to reach the head (right shoulder), and a break below the neckline confirming the reversal.\n\nFor prop firm traders, the head and shoulders provides a measured move target equal to the distance from the head to the neckline, projected downward from the breakout point. This gives a defined reward target before entering, critical for calculating whether the trade fits within your daily loss budget and profit objective. The stop-loss is typically placed above the right shoulder, which creates a wide stop but is structurally logical.\n\nThe inverse head and shoulders (at the bottom of a downtrend) works identically but signals a bullish reversal. Prop firm traders using FTMO or FundedNext (static drawdown, no time limit) can hold through the extended formation of these patterns. Firms requiring daily flattening (TopStep futures) are less suitable because the pattern may take days or weeks to complete.","exampleWithNumbers":"EUR/USD 4H head and shoulders: head at 1.1050, neckline at 1.0920. Pattern height: 130 pips. Breakout entry at 1.0915 (neckline break), stop at 1.0990 (right shoulder high). Stop width: 75 pips. Measured move target: 1.0790 (130 pips below neckline). Reward: 125 pips. R:R = 1:1.67. On FTMO $100K, risking 1% ($1,000): position = 1 standard lot. Risk: $750. Reward: $1,250.","category":"strategy","relatedTerms":["chart-patterns","double-top","market-structure","risk-reward-ratio","stop-loss"]},"_links":{"self":"https://runvigil.app/api/glossary/head-shoulders","page":"https://runvigil.app/learn/head-shoulders","allTerms":"https://runvigil.app/api/glossary","learn":"https://runvigil.app/learn"}}