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. Neckline

    A level of support or resistance found on a head and shoulders ...
  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. Reversal

    A change in the direction of a price trend. On a price chart, ...
  5. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  6. Triple Top

    A pattern used in technical analysis to predict the reversal ...
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

    Where do I place my target when the price of a stock breaks out of a technical chart pattern?

    Technical chart patterns such as ascending triangles, head and shoulders and double bottoms have rapidly grown in popularity among individual investors, but the biggest challenge when using these ...
  3. 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.
  4. Active Trading

    Tales From The Trenches: Don't Count On Luck

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

    What is considered a good PEG (price to earnings growth) ratio?

    Learn about the price/earnings to growth (PEG) ratio and understand what investors and market analysts consider a good ratio for this valuation measure.
  6. Charts & Patterns

    How do I build a profitable strategy when spotting a Rising Three Methods pattern?

    Read about how to identify and then build a trading strategy around a rising three methods pattern on a Japanese candlestick chart.
  7. Technical Indicators

    How do quant traders build the relative strength index (RSI) into their algorithms?

    Learn how quantitative traders build the relative strength index (RSI) into their algorithms. Explore how automated trading systems are programmed.
  8. Technical Indicators

    What are some historical examples of the relative strength index (RSI)?

    Learn about the relative strength index (RSI) and overbought and oversold readings. Explore historic examples when RSI readings were oversold and shares rallied.
  9. Technical Indicators

    What is the advantage of using the relative strength index (RSI)?

    Discover the advantages of using RSI as a financial tool. One benefit is that it helps traders make quick market entries and exits.
  10. Technical Indicators

    Who uses the relative strength index (RSI)?

    Understand how experts use the relative strength index (RSI) to improve their knowledge of a stock and its history in the market and whether to invest.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center