Inverse Head and Shoulder | Bullish Chart Pattern

Understanding the Inverse Head and Shoulder pattern →

Hey there!

Bringing to you a chart pattern suggesting a short-term trend reversal:

➡️ Inverse head and shoulder is a short-term trend-reversal chart pattern characterized by 3 troughs: the first and third troughs are roughly equal in depth and are known as "shoulders", while the second trough is deeper and is called the "head".

➡️ Structure of Inverse Head and Shoulder :

  • Left Shoulder: After a downtrend, the price of the stock makes a low and then rallies to a higher point, forming the left shoulder.

  • Head: Following the formation of the left shoulder, the price declines to a point lower than the left shoulder and then rallies again, forming the head.

  • Right Shoulder: Finally, the price declines again but not as low as the head, and then rallies one more time, forming the right shoulder.

  • Neckline: A trendline is drawn connecting the high points (or "peaks") after the formation of each shoulder and the head.

➡️ The trader could enter a long position when the price breaks above the neckline, preferably on high volume, or when the price returns to retest the neckline.

➡️ In order to manage risks, the trader should place a stop loss slightly below the right shoulder or the neckline to minimize potential losses.

➡️ Note: It is important that inverse head and shoulder should be formed in a downtrend as for reversal to occur, there must be something to reverse.

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