Head and Shoulders pattern...and all patterns...are based on human psychology.

Pain and pleasure.


Head and Shoulder Pattern is basically the tiny pleasure from first shoulder, then ecstatic pleasure from head, then a painful realization it was not a meaningful move when goes back down to the last shoulder. At that point you realize you are right back at where you started. It invalidates the entire pattern. those buying at first shoulder are even(after seeing huge gains disappear) those who bought in the head are losing money and those buying at the last shoulder are betting on volume from news or fundamentals or they just don't see it... What usually happens is the last shoulder breaks downward and you get the first shoulder buyers feeling pain...and they sell.. The head buyers who didn't sell yet definitely sell...and the last shoulder gamblers usually sell as well... You basically blow up the entire price action.

BTC has a massive one now threatening to invalidate most of run from winter..


Nothing is guaranteed.


But these are the psychological forces... Whos making money right now? Who's losing money? How does this effect decision making?



it usually breaks down in this pattern because even if it goes up initially everybody who bought in the head is trying to cut loses or break even so they sell.. Everybody who bought at first shoulder is desperate to sell at a little profit after seeing big gains disappear into break even... And last shoulder buys usually understand the other two motives and sell for profit on a day trade.


All these reasons is why head and shoulders usually indicates further downward movement.