What is Head and Shoulders (Technical Formation)?

Head and shoulders technical formations visually consist of a left shoulder, a head, a right shoulder, as well as a neckline (which is drawn across the bottom of the formation). These formations are created by rising and dropping prices that form two smaller "shoulders" surrounding a larger "head" in the center. Head and shoulders typically occur when an asset is close to a reversal in price. With an inverse head and shoulders formation, the opposite occurs once the pattern has been defined, with the end result often being an increase in price.