Time is also an element. Inexperienced analysts can often rely just on shape to assume charts are displaying a bearish or bullish trend. A common rule of thumb, however, is that the rise on the initial shoulder needs to be twice as long as the distance between the shoulders for the head and shoulders pattern to be a true reflection of an actual trend and not just a brief blip in prices. This is a particular problem for intraday traders who discover head and shoulders-like patterns on one- or four-hour charts.
Examine the neckline. It’s rare that a neckline will be a perfect horizontal line. But you’d like to see either a relatively horizontal line or one that’s ascending, i.e., rising from left to right. A descending neckline that falls from left to right is the sign of a weak pattern.
Finally, make sure that you’re looking at an actual head and shoulders pattern. If one shoulder is higher than the head, you’re not. Don’t rely on an apparent downward trend near the end of a head and shoulders pattern to form the basis for an investment decision. Stock and commodity prices have a bad habit of moving erratically, and you don’t want to jump the gun.
