Inverse Head and Shoulders

 


Another trend reversal chart is the inverse head and shoulders, also known as a head and shoulders bottom This technical analysis indicator is similar to the standard head and shoulders pattern, but inverted.The inverted head and shoulders pattern indicates a movement towards a bullish trend and an excellent indicator for traders who know how to spot the pattern, allowing them to deploy commit capital on a bullish trade. Very similar in look to that of a short call option with the only exception being that the “head” dips lower than the other two points giving it the inverted head a shoulders formation.

The pattern can be recognized when the price of a stock falls to a trough and then rises, then falls below the recent trough forming the head, and then rises again. triple bottom stock Finally, the price drops back but not as deep as the previous time. Once the last trough is made, the price action moves upward, toward the resistance level and breaks through.

As with the traditional inverse head and shoulders pattern, which indicates a move towards the bearish territory, this pattern is the exact opposite. risk reversal option This pattern, however, is also able to tell you a few things you may want to know that its counterpart doesn’t. For instance, this pattern can indicate how strong a bullish run will be if you read it correctly.

When to Enter the Trade

When executing an inverse head and shoulders pattern, a stop loss order should be placed slightly below the neckline in anticipation of the breakout. For those who want to place a more aggressive trade, they can enter their stop loss order at the bottom of the right shoulders of the inverse head and shoulders pattern. falling wedge Traders should be careful with this pattern, after the initial drop, when the first shoulder is formed, bears will come into the market and try to push the price of the stock down even further. If they’re successful, they could continue their control, forcing an extended downtrend.

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