Trading the head and shoulders chart pattern in the common way is to treat it as a reversal pattern and the pattern is named due to the shape of the pattern that resembles the head and shoulders of a human. There are three peaks with the middle one being the highest. The fourth feature is called the neckline. It is formed by drawing a line between the two depressions. Classical technical analysis defines an uptrend as a series of higher highs and higher lows. We have an uptrend here, culminating in the head of the pattern. The right shoulder suggests the weakening of this uptrend. This is further indicated by the new low at the right neckline.
When a trend ends, it will be followed by a sideways price consolidation or by a reversal. The reversal is signaled by the price breaking through the neckline. The neckline represents a level of resistance to the downward move. You can often see price retracing to the neckline before resuming the downtrend. You want to see the price action at the neckline to see if there will be a failure with this pattern. The neckline also helps to find the price target. You can also split the difference of the price target and use that as a place to tighten your stop or scale out the trade. We measure the distance from the top of the head to the neckline. This distance is then subtracted from the neckline to give us a minimum target for the move down.
This pattern is often further confirmed by volume. This is a secondary confirmation. There is also an opposing pattern called the inverse head and shoulders pattern. The proper way to trade this pattern is to wait for a break of the neckline. You can miss much of a great move. Trading the neckline break has you in a losing trade the moment price crosses back over the neckline. The pattern can also fail and we typically consider it failed if price breaks above the right shoulder. Don't bother looking for them during price consolidation or in choppy markets. A daily chart is useful to observe this pattern.