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The bullish counterpart to the Head & Shoulders. Three troughs with the middle (head) lowest, flanked by two higher troughs (shoulders).
The Inverse Head and Shoulders is the bullish counterpart to the Head & Shoulders - a major bottoming pattern that signals a reversal from downtrend to uptrend. It consists of three troughs: a left shoulder, a deeper head (the lowest point), and a right shoulder at approximately the same level as the left.
The pattern forms after a downtrend and is confirmed when price breaks above the neckline - the resistance line connecting the peaks between the three troughs. It represents a gradual shift in control from sellers to buyers.
This pattern tells the story of sellers losing their grip. The left shoulder forms as the downtrend continues - sellers push to a new low, then a relief rally creates part of the neckline. Business as usual for a downtrend.
The head is the final push lower. Sellers drive price to the deepest point, but the subsequent bounce is stronger than expected - buyers are starting to accumulate. The right shoulder is the key tell: sellers try again but can't even reach the head's low. Demand is absorbing every attempt to push lower.
The neckline break is the tipping point. When price clears this resistance, it confirms that the balance of power has shifted. Trapped shorts covering their positions add fuel to the breakout.
Conservative: Buy on neckline breakout with a close above, or on a retest of the neckline as new support.
Aggressive: Buy at the right shoulder with stop below the head.
Conservative: Below the neckline (tighter) or below the right shoulder (wider).
Aggressive: Below the head (widest but safest invalidation point).
Measured Move: Distance from head to neckline, projected upward from the breakout point. Conservative T1: Previous resistance level or 50% of the measured move.
Often 1:3 or better. The deep head creates a large measured move target, making this one of the highest R:R patterns available.
The Inverse Head & Shoulders is one of the most reliable bottoming patterns, but not all setups are equal. The depth of the prior downtrend and the quality of the breakout determine success.
The neckline on inverse patterns is often sloped. An upward-sloping neckline is more bullish because it shows buyers getting more aggressive at each bounce.
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