Charting  |  APR 2002

Does The Head & Shoulders Formation Work? by Martin Boot

Does The Head & Shoulders Formation Work? by Martin Boot Rarely will you come across a technique that detects an imminent change in trend, but here’s a method that can help you do just that. The head and shoulders pattern has long been considered one of the most reliable in technical analysis. That should mean that more often than not, every trader can make high returns on their holdings. Unfortunately, it’s not that simple. I am engaged in a major research project involving statistical analysis of 8,513 New York Stock Exchange (NYSE) and Nasdaq stocks over a four-year period. I test well-known technical indicators as well as technical patterns, and the results have been revealing. They seem to be more in sync with daily trading practices than other results I have found in the literature. Recently, I completed my study of the well-known head and shoulders pattern, which is considered to indicate and even predict a change in trend. Here are the results.

by Martin Boot