Head and Shoulders Pattern: One of the most important chart patterns to be familiar with is the head and shoulders pattern. There are three variations when working in or near the start of a bull market. The first an investor may see when looking at a daily chart is when a shoulder was formed over the course of a few weeks, the stock has descended, come back up and formed the head over some more weeks and descended again. If the head is above the left shoulder then the stock is predicted to continue rising.
The second head and shoulders pattern an investor may see when looking at a daily chart will exhibit a left shoulder, then descends, comes back up and has formed a head which is lower than the left shoulder. The stock is losing positive momentum, buyers are drying up and the stock will likely be overcome by sellers and descend much more soon.
The third pattern is basically the second pattern after the third shoulder is formed. The third shoulder most often stops close to the head and below the left shoulder. When this happens it's even more sure the stock will descend and descend very soon. It would be wise to sell before it goes far lower than the base.