K-line is one of the reference indicators for stock analysis. Investors can understand the trend of stocks through K-line. Stock K-line has many forms, such as head and shoulders top form.

What does the head and shoulders pattern look like?

The head and shoulders top refers to the three obvious peaks in the middle that are slightly higher than the two sides after the stock price or index rises sharply. These three peaks are called left shoulder, head and right shoulder respectively from left to right. Moreover, the trading volume at the head and shoulders top often shows a stepped downward trend.

The head and shoulders pattern can be divided into the following different parts:

(1) Left shoulder part - During a period of rising, the volume of transactions is very large, buy at any time in the past Everyone can make a profit, so they start selling at a profit, causing the stock price to fall back in a short period of time, and the trading volume is significantly reduced compared to when it rose to the peak.

(2) Head part - After a brief decline, the stock price rose strongly again, and the trading volume also increased accordingly. However, the highest point of the deal is significantly lower compared to the left shoulder. The stock price exceeded the high on the left shoulder and then fell back down. During this period of decline, the number of transactions will also decrease.

(3) Right shoulder part - the stock price fell close to the last low, and once again received support to rebound. However, market investment sentiment has weakened significantly, and trading volume has been significantly lower than that of the left shoulder and head. The stock price falls back when it is unable to reach the high point of the head, thus forming the right shoulder part.

(4) Breakthrough - the top of the right shoulder falls and breaks through the bottom neckline connecting the bottom of the left shoulder and the bottom of the head. Its breakthrough at the neckline is more than 3% of the market price. Simply put, the shape of the head and shoulders top presents three obvious peaks, of which the middle peak is slightly higher than the other two peaks and the trading volume gradually decreases.

The key points of operating the head and shoulders top.

The head and shoulders top is a strong signal that a top has been reached. Once the neckline that bulls rely on for survival is effectively broken by the negative line, it is almost certain that the stock price will fall in the future. If the market reaches this stage, investors must recognize the trend clearly and not make illusions. Stop loss is the best choice at that time. In actual operation, we should pay close attention to the following aspects.

[1] When the stock price forms the prototype of head and shoulders, it is necessary to arouse high vigilance. At this time, although the stock price has not yet fallen below the support line, you can sell some of your chips first to reduce your position. Once they find that the stock price falls below the neckline in the future, they will sell all the remaining stocks in their hands and exit the wait-and-see process.

[2] When breaking through upward, larger trading volume is required, but when breaking through downward, trading volume can be enlarged or reduced. For the head and shoulders top and neckline, the volume breaks through with a small amount at first, and then the volume decreases, or even maintains a small amount. Continued declines are also common. Investors must have a clear understanding of this.

[3] The lethality of the head and shoulders is directly proportional to the length of their formation. Therefore, investors should not only pay attention to the daily K-line chart, but also pay great attention to the head and shoulders top pattern in the weekly K-line chart and monthly K-line chart. If this pattern appears, it means that the mid- to long-term trend is weakening and there will be a long-term decline. It is necessary to leave early.