Head-and-shoulders geometry versus the filter stack

A dispute over the head-and-shoulders name

A letter writer argued that an algorithmic three-peak detector misapplied the head-and-shoulders name because its illustrated cases, as recalled, failed older volume-fade and neckline-slope rules.

That writer recalled mid-century technician agreement that a top neckline should be level or downsloping and that volume should decline across the three peaks.

The algorithm author framed the work as a flexible recognition method rather than a trading system and accepted calling the detections a potential head-and-shoulders.

Geometry first, then milestone points

The author described the detector as simple, scale-independent, and computerizable. Scale-free detection, as used here, is pattern recognition that does not depend on a fixed chart scale or a single display setting.

The author said the detector emits milestone points so extra filters such as volume, neckline, or slope can be added afterward. Milestone points are structural points that let those later tests attach without changing the first geometry match.

In this article a head-and-shoulders is a three-peak price structure whose middle peak, the head, stands above the two flanking shoulders. The neckline is the reference line drawn through the troughs that separate the left shoulder, head, and right shoulder.

A potential head-and-shoulders, in the same usage, is a geometry match that has not yet been accepted or rejected by optional qualification filters.

Quality tests come after the shape

The author treated volume behavior and neckline slope as discretionary quality tests, comparable to judging whether a breakout is high-quality rather than whether a breakout exists.

Volume fade across peaks is one such quality test. It looks for lighter activity on the right shoulder than on both the left shoulder and the head.

The author argued that making volume mandatory for the name would imply no head-and-shoulders exists in markets where true trading volume cannot be computed.

How older volume rules were restated

In reply, the author restated a classical stock-chart treatment as asking that volume on the right shoulder be lower than volume on both the left shoulder and the head.

The author also restated a later market-analysis treatment as calling volume less critical while a top is completing.

Neckline slope as a later filter

The same reply summarized a classical warning that a downsloping neckline can look unusually weak, yet some of that weakness is already spent by the time price breaks the line.

The author reported that the disputed textbook illustrations of the pattern used rising or flat necklines, and restated another treatment as saying a falling top neckline can delay a neckline-break short until more of the move has already occurred.