I've noticed that many beginners miss one of the most reliable trend reversal signals. It's about the head and shoulders pattern—a classic pattern that forms at the end of an upward trend and warns of a potential reversal.

What does it look like? Imagine three peaks on a chart. The first peak is the left shoulder, then the price pulls back. Next comes a higher peak—the head of the pattern. After another pullback, the right shoulder forms, usually roughly at the same level as the left. The lows between these peaks are connected by the so-called neckline—which can be horizontal or slightly sloped.

The key thing to understand is that the head and shoulders pattern works precisely because it reflects real market behavior. The first peak represents the enthusiasm of buyers. The second, higher peak indicates an attempt to continue the rally but with less strength. The third, lower peak signals exhaustion.

How to spot it? First, make sure you're in an uptrend—that's a prerequisite. Second, check the volume. Usually, during the formation of the right shoulder, volume decreases, but when the price breaks below the neckline, volume sharply increases. This confirms the strength of the move.

What’s next? As soon as the price closes below the neckline, it's a signal to enter a short position. Place your stop-loss just above the right shoulder to protect against false breakouts. The target price can be simply calculated: measure the distance from the head's peak to the neckline and project that same distance downward from the breakout point.

The head and shoulders pattern isn't a guarantee, but it's one of the most proven tools. The main thing is to remember risk management and avoid entering trades based on emotions. Trade with sizes you can afford to lose, and always use stop-losses.