Head-and-Shoulders Targets: Check the Arithmetic

The central lesson is mathematical. A measured move from a head-and-shoulders pattern is a planning convention, not a price prediction. Before placing a target, check whether the chosen measurement even makes sense at the breakout price.

Points can produce nonsense

Consider an illustrative stock that falls from about $16 at the head to a $5 neckline: an $11 height. Subtracting $11 from a later break near $5 would imply a negative share price. That target is impossible for an ordinary share. The arithmetic should stop the analyst before the trade starts.

A percentage is one alternative

The decline from $16 to $5 is $11 divided by $16, or 68.75%. Applying the same percentage to a $5 break gives an illustrative target near $1.56. The transcript rounds that to 70% and $1.50. The percentage method avoids a negative price, but it does not make the target likely.

Either method changes the scale of the assumption. The point method asks for another $11 decline; the percentage method asks for another 68.75% decline. Those are not interchangeable forecasts. In other charts, the point method may be feasible and the percentage method may still be too aggressive.

Separate the target from the risk plan

Mark the neckline, invalidation level and position size before considering either target. Then test the exact rule on a full sample of similar setups, including false breaks. A measured move can organise an exit plan; it cannot establish an edge by itself.