Inverse Head and Shoulders
Well-DocumentedThe mirror image of the head and shoulders top: a three-trough reversal pattern that forms at the end of a downtrend, where a deeper middle trough (the head) sits between two shallower, roughly equal troughs (the shoulders).
Candlestick chart showing a downtrend falling into a left shoulder trough, bouncing, falling lower to form a head trough, bouncing back to a similar level (forming a roughly flat neckline), falling again to a right shoulder trough shallower than the head, then breaking up decisively through the neckline into a new uptrend.
Sample data — illustrative only, generated to demonstrate this pattern's shape. Not a real security.
Identification Criteria
- Forms only after a sustained downtrend — the pattern has no reversal meaning without prior decline to reverse.
- Left shoulder: price falls to a trough, then bounces on short-covering or bargain buying.
- Head: price falls again to a new low, clearly below the left shoulder, then bounces back to roughly the same level as the first bounce.
- Right shoulder: price falls a third time but fails to reach the depth of the head, then turns up again.
- A neckline connects the two bounce highs; it can be flat or sloped.
- Volume often expands noticeably on the rally through the neckline compared to the two shoulders — a common (not universal) confirming signature.
Formation Logic
The pattern reflects fading selling pressure. Each decline is met with buying, and the failure of the third decline (the right shoulder) to reach the head's low is the first sign that supply is losing to demand. The neckline is the resistance level sellers have defended twice; a close above it removes that resistance.
Breakout / Confirmation Rule
The pattern completes only on a decisive close above the neckline, ideally with rising volume. A break that stalls immediately at the neckline, or occurs on thin volume, is unconfirmed and more prone to failure or a false start.
Measured-Move Price Target
A widely used, purely illustrative measured-move technique: measure the vertical distance from the head's trough to the neckline, then project that distance upward from the breakout point. This is a framing heuristic for risk/reward, not a guarantee.
Common Pitfalls
- Confusing a normal bounce within a downtrend for a right shoulder before the neckline actually breaks.
- Buying on a neckline touch instead of waiting for a confirmed close above it.
- Overlooking a downward-sloping neckline, which needs a higher breakout level than a flat one.
- Assuming validity without a genuine prior downtrend to reverse.