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Head and shoulder top and bottom formations are usually confirmed by measures of market momentum, such as the rate of change. Momentum generally declines as the formation develops along. Positive divergences (at market bottoms) and nega-tive divergences (at market tops) provide additional evidence that significant changes in market climate might be developing.
Bearish head and shoulder formations often take place in Stage 3 (market topping), and bullish formations typically take place during Stage 1 (market base building). The t i e required to complete of such formations provides the opportunity for investors to carefully reduce or to accumulate positions.