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Inverse Head and Shoulders Pattern
Inverse Head and Shoulders patterns are mirror images of Head and Shoulders patterns. They are formed with inverse shoulder (like valley), another larger valley (head part) and followed by another valley (second shoulder). A neckline is drawn connecting three top parts of the valleys using a trend line. This neckline is used as a way to signal or trigger a trade and measure targets. Inverse Head and Shoulders pattern is very reliable pattern. They are more effective when patterns are formed at the end of down-trend.

Inv. Head and Shoulders patterns can be validated using volume patterns. During the left shoulder and the beginning of the “Head” formations, the volume will be heavy. While forming, volume dissipates on the right shoulder, and the volume increases during the breakouts. A trend line or neckline is drawn connecting the Inverse Head and Shoulders pattern to determine the potential trade opportunities and targets.
How to Trade
Inverse Head and Shoulders Pattern
Trading patterns must have two key components: 1. Pattern Integrity and 2. Market Context. Patterns must be properly constructed and uniformly formed before a trade is considered. Patterns must agree with market conditions and market context tools. Also patterns must meet its key trading rules for successful execution and successful trading.

Trade:
 Inverse Head and Shoulders pattern is defined by two shoulders, a Head and a neckline connecting the tops of the Shoulders and Head. When price closes below the neckline, a potential short trade is signaled. Short one tick below the breakdown bar’s low. Target: Compute the vertical distance between the “apex” of the Inv. Head and Shoulders pattern and the neckline. The target is set above this distance from the neckline. Stop: If the price closes below the neckline, a potential failure of the Inv. Head and Shoulders pattern is signaled. Place a “stop” order above the neckline. A secondary stop is placed the mid-distance between the right-shoulder and the neckline. If price closes below this midline, close the trade.
Trade Examples

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