In this article, We learn about “Inverse Head and Shoulders Bottom “.Let’s Go!
Inverse Head and Shoulders Bottom , also known as “Head and Shoulders Bottom” is a reversal chart pattern.
It is similar to the standard head and shoulders pattern except that it is inverted.
This pattern consists of three consecutive lows, with the middle low (the “head”) being the deepest and the two outer lows (the “shoulders”) being shallower.
Ideally, both shoulders are equal in height and width
The completion of the
Inverse Head and Shoulders pattern signals a bullish trend reversal.
Traders typically enter long positions when price rises above neckline resistance.
This pattern begins as a downtrend with two lower lows (1 and 3) and two lower highs (2 and 4), forming the first and second bottoms.
Point 5 forms a higher low above points 3 and 1, which forms a third bottom.
This indicated that the downtrend was coming to an end, although a reversal was confirmed when the price broke above the neckline at point 6 and moved up above the previous high at point 4.
The pattern is confirmed once price breaks through the neckline resistance and continues higher (2 and 4).
The volume trend is similar to the head and shoulders pattern.
Volume is typically highest as price makes the first two dips (1 and 3), then decreases through the right shoulder (5).
Then volume surges as price closes above the neckline, which is between the two highs (2 and 4), to confirm the trend reversal.
It is also worth observing whether the descent to point 3 is less steep than that of point 1, and whether the descent to point 5 is less steep than that of point 3.
If this does happen, it would indicate that bears are becoming less aggressive and the downward momentum is losing steam, increasing the likelihood of a reversal.
When a head and shoulders pattern occurs in a downtrend, it signals a major reversal.
Just like in the Straight Head and Shoulders pattern, the strength of this reversal (as measured by the amount of upside after the breakout) is directly proportional to the amount of downside that preceded the pattern.
The stronger the previous trend, the more likely it is that a more dramatic reversal will occur.
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