A Head and Shoulders Bottom is a reversal pattern that can appear at the end of a major decline where it can signal the end of the downtrend. A good Head and Shoulders Bottom will have the presense of symmetry. The most important thing to look for when assessing whether to trade the pattern is volume - there must be a final sell-off at the Head, marked by higher volume activity followed by firm rising on-balance volume on the Right Shoulder as the buyers resume control of the stock. When interpreted correctly, the Head and Shoulders Bottom is the most reliable of all chart patterns.
Profit Target - can be measured by adding the height between the head and neckline to the point of breakout.
Example - A daily chart of GAP showing a Head and Shoulders Bottom.
Trading Tip - The breakout of the neckline must occur on sufficiently large volume expansion if there’s to be a successful trend reversal.