This classic Head and Shoulders pattern is the climax of a plan that was put in action well in advance of the day it occurred. You can see where this began on the left hand chart. The channel marking the upward trend that the market had been following since early March was broken by a flag formation on the 17/18th May. This is the first sign of the the “smart money”, the composite operator.

The head and shoulders pattern is a distribution formation. The market hits the top of the long term channel and moves side ways, accumulation, forming a new, flatter channel. On the 17th May we see a dip that is the spring before mark-up. The market shifts channel again on the 28th May. After this the demand line becomes resistance.

Moving over to the chat on the right, H1 timeframe. Weak hands think the market is selling off and no doubt buy into that. Then suddenly there is a selling climax, the down trend stops and we enter a enter into a period of accumulation. The price rallies then there is a sudden stop at the high and reversal — another direction change.  Accumulation forms the left shoulder. Pushing the market lower mimics a short. It’s position to a price where they want to accumulate. They take the market higher taking out weak-hands and short stops with it.

A harami forms the head and marks a sudden stop and reversal moving lower to a selling climax. That’s another sudden stop followed by eleven days of accumulation that forms the right hand shoulder. There is a test of the high before the market sells-of, distribution.

The opposite of this manoeuvre is an Inverse Head and Shoulders pattern that forms at the bottom of a down trend. Both patterns share many of the same characteristics.