Inverse Head And Shoulders

AAA

DEFINITION of 'Inverse Head And Shoulders'

A chart pattern used in technical analysis to predict the reversal of a current downtrend. This pattern is identified when the price action of a security meets the following characteristics:

1. The price falls to a trough and then rises.
2. The price falls below the former trough and then rises again.
3. Finally, the price falls again, but not as far as the second trough.

Once the final trough is made, the price heads upward toward the resistance found near the top of the previous troughs. Investors typically enter into a long position when the price rises above the resistance of the neckline. The first and third trough are considered shoulders, and the second peak forms the head.

Inverse Head And Shoulders



This pattern is also known as a "reverse head and shoulders" or a "head and shoulders bottom".

INVESTOPEDIA EXPLAINS 'Inverse Head And Shoulders'

As you can see from the chart above, a move above the resistance, also known as the neckline, is used as a signal of a sharp move higher. Many traders will watch for a large spike in volume to confirm the validity of the breakout. This pattern is the opposite of the popular head and shoulders pattern, but is used to predict shifts in a downtrend rather than an uptrend.

RELATED TERMS
  1. Peak

    The highest point between the end of an economic expansion and ...
  2. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  3. Resistance (Resistance Level)

    A chart point or range that caps an increase in the level of ...
  4. Breakout

    A price movement through an identified level of support or resistance, ...
  5. Reversal

    A change in the direction of a price trend. On a price chart, ...
  6. Trough

    The stage of the economy's business cycle that marks the end ...
RELATED FAQS
  1. Where do I place my target when the price of a stock breaks out of a technical chart ...

    Technical chart patterns such as ascending triangles, head and shoulders and double bottoms have rapidly grown in popularity ... Read Full Answer >>
  2. What's the difference between the coverage ratio and the levered free cash flow to ...

    Coverage ratios focus on a company’s ability to manage its debt, while the levered free cash flow to enterprise value ratio ... Read Full Answer >>
  3. How can I use market capitalization to evaluate a stock?

    Market capitalization represents the market value for an entire company. Investors can compare market cap to financial data ... Read Full Answer >>
  4. What are the advantages and disadvantages of using systematic sampling?

    As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >>
  5. How effective is creating trade entries after spotting a Tri-Star pattern?

    The tri-star patterns, both bullish and bearish, are about as rare as they are unreliable. Comprised of three consecutive ... Read Full Answer >>
  6. How do S&P 500 futures work?

    S&P 500 futures are a type of capital asset contract that provides a buyer the right to a predetermined selection of ... Read Full Answer >>
Related Articles
  1. Trading Strategies

    How To Trade The Head And Shoulders Pattern

    The head-and-shoulders chart pattern is a popular and easy-to-spot pattern - once a trader is aware of what they are watching for.
  2. Trading Strategies

    Basics Of Technical Analysis

    Learn how chartists analyze the price movements of the market. We'll introduce you to the most important concepts in this approach.
  3. Active Trading

    Tales From The Trenches: Don't Count On Luck

    ChartAdvisor experts illustrate why it's important to stick to your strategy.
  4. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  5. Chart Advisor

    Invest in Japan with this ETF

    The Japanese stock market has been front and center in the minds of many international traders over the past few weeks — and for good reason.
  6. Charts & Patterns

    How to Analyze Pharma Stock Fundamentals

    What you need to know about analyzing the fundamentals of pharma stocks.
  7. Chart Advisor

    Bullish Traders Are Turning To Rare Earth Metals

    Companies that explore and or process rare metals are of specific interest to traders because of strong moves in a couple of the sector’s key players.
  8. Chart Advisor

    Long and Short Trades to Consider This Week

    Here are short and long trades to consider, so you have choices no matter which way the market goes.
  9. Trading Strategies

    How To Best Analyze Relative Strength

    Relative strength indicators measure performance between similar instruments, uncovering opportunities that can translate into reliable profits.
  10. Technical Indicators

    A Guide To Finding The Most Actively Traded Stocks

    Knowing the trading volume of a stock helps traders understand price movements and forecast future movements. This short guide helps investors locate actively traded data.

You May Also Like

Hot Definitions
  1. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  2. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  3. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  4. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  5. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
Trading Center