An Inverse Head and Shoulders, also called a “Head and Shoulders Bottom” is a reversal chart pattern.The pattern contains three successive lows with the middle low (“head”) being the deepest and the two outside lows (“shoulders”) being shallower. Ideally, the two shoulders would be equal in height and width
An Inverse Head and Shoulders pattern, upon completion, signals a bullish trend reversal.
Traders typically enter into a long position when the price rises above the resistance of the neckline.
The pattern begins with a downtrend with two lower lows (1 & 3) and two lower highs (2 & 4) which form the first and second bottom. Point 5 makes a higher low which is higher than both points 3 and 1 and this forms the third bottom. This illustrates that the downward trend is coming to an end although the reversal is confirmed when price pushes up through the neckline at point 6 moving up pass the previous high at point 4.The pattern is confirmed once the price breaches the neckline resistance and continues higher (2 & 4).