Reverse Head & Shoulders Pattern
Now that you’ve heard about the famous “Head and Shoulder’s Pattern” (if not watch the previous video here), let’s look at its Mirror Image the Reverse Head and Shoulders Pattern also known as the “inverse head and shoulders”.
So what is a reverse or sometimes known as inverse “Head and Shoulders” pattern? According to investopedia.com
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 stock or other security meets the following characteristics within a chart:
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.
The main take away here is that the reverse/inverse “Head and Shoulders” pattern is bullish reversal pattern. Spotting this pattern early could lead to massive profits on the upside. Catching the pattern early is not always as easy as it looks since many stocks can fake out or only form half of a “head and shoulders” and potentially go lower, most traders do not enter until the so called “neckline” has been broken.
Usually if it is a true reverse “Head and Shoulders” pattern then the stock will have more upside to go and possibly for a while.