Inverse Head and Shoulders
A reversal pattern that forms at the end of a downtrend and is made of three troughs. The middle trough (the head) is lower than the two on either side (the shoulders). It completes when price rises above the neckline that connects the two peaks, and it can signal that the downtrend is losing strength.
How it forms
- Prior downtrend. The pattern is a reversal signal. It needs a clear downtrend before it.
- Left shoulder. Price makes a new low, then recovers to a peak.
- Head. Price makes a lower low than the left shoulder, then climbs back to roughly the first peak's level.
- Right shoulder. Price falls again but does not reach the head. This trough is usually near the left shoulder's level.
- Neckline. Drawn by connecting the two peaks before and after the head. It can be flat, or slightly sloped up or down.
- Completion. The pattern is complete when price closes above the neckline. Until that close, it is only forming.
What it suggests
In a downtrend, each trough is lower than the last. At the right shoulder, price does not fall as far as the head. This can show that sellers are losing the strength to push price lower. A break above the neckline suggests that the last peak sellers were defending has been cleared as well.
Upside breaks often need a rise in volume. If volume stays weak, price may struggle to hold above the neckline. Drawing conclusions before completion is the most common mistake here too: even when the right shoulder seems to have formed, price can still make a new low.
When it strengthens, when it weakens
Strengthens
- The head forming at a support zone
- Selling volume fading from the left shoulder to the head
- A clear rise in volume as the neckline breaks
- Shoulders similar in depth and duration
- An upward-sloping neckline
Weakens
- No clear downtrend before the pattern
- Shoulders very different in depth or duration
- The break coming on low volume
- A strong resistance zone just above the neckline
- A steep downward-sloping neckline
The MarketLevelMap view
How it relates to zones
An inverse head and shoulders has three critical places, and all three become more meaningful when read alongside zones:
- If the head forms at a support zone, it suggests price could not get below that zone and buyers were waiting there.
- If the neckline lines up with a resistance zone, the break carries more weight, because what is cleared is not just a line but an area where price has turned before.
- The first resistance zone above the break is a more realistic reference than the measured move for where price may react again.
After the break, price sometimes returns to retest the neckline from above. If the neckline lines up with a resistance zone, that zone may now act as support. A close back below the neckline during this retest can suggest the break was weak.
When it completes
Close above the neckline.
When it is invalidated
Before completion: If, after the right shoulder forms, price falls below the head without breaking the neckline, the pattern is considered not to have formed.
After completion: Even after a close above the neckline, if price drops back below it and closes below the right shoulder's trough, the bullish scenario is considered invalid. This sometimes leads to sharp moves down, as those who positioned on the pattern are forced to close.
Often confused with
- Head and ShouldersThe mirror image: three peaks after a rise, a bearish reversal.
- Double BottomNo head: two troughs at a similar level with a peak between them.
- Triple BottomAll three troughs are at roughly the same level; the middle one does not stand out.
For general information only. Not investment advice.Last updated: