Inverse Head and Shoulders

Inverse head and shoulders were derived from its original head and shoulders, but they have different meanings. Inverted head and shoulders are a sign of price trend reversal, and it is expected to be followed by a change in the direction of the price of an asset. Typically, it is formed in a developed trend, reaching down.

Inverse Head and Shoulders in Trading

The model is characterized by three successive minimum values ​​market prices that are located on different lines: Two that are above (shoulders) at one side and the smallest (head) lies therebetween. There is also a level of the neck (resistance) that connects the highs.

When the pattern is formed, and the cost rises above the level of the neck or the resistance level (some deviations are possible), investors will have a buy signal. It is expected that the rally will continue, although the price may move to the level of the neck. It is now considered as the support, but it usually stops around.

Target Price

It is assumed that after the formation of the reverse pattern head and shoulders, the cost usually rises at least until the target level calculated as follows:

T = H + (H – H)

Where:

T – Target Level

N – Cleavage Line (Initial Resistance)

H – Head Line Pattern (Lower Down)