The Inverted Head and Shoulders pattern is a technical analytical pattern on a price chart that is also used to predict a trend reversal. It has similar characteristics to the "Head and Shoulders" pattern, but differs in the direction of the trend and its reverse formation.The main features of the Inverted Head and Shoulders pattern include:
1. Inverted shapes: In this pattern, the first shoulder is formed below the price of the head, and the second shoulder is above the price of the head, which leads to an inverted formation of the head and shoulders.
2. Neck:
As in the "Head and Shoulders" pattern, the neck is a support line connecting two minima between the shoulders. Breaking the neck up is a buy signal.3. Trading volumes:
Similar to the "Head and Shoulders" pattern, trading volumes can play an important role in the analysis of the "Inverted Head and Shoulders" pattern. An increase in the volume on the formation of the shoulders and the penetration of the neck can confirm the strength of the pattern signal.How to use the Inverted Head and Shoulders pattern in trading:
1. Trend Definition: The "Inverted Head and Shoulders" pattern is a trend reversal signal.
If the pattern appears at the end of a downtrend, it may be a signal of a possible upward reversal, and vice versa, if the pattern appears at the end of an uptrend, it may be a signal of a possible downward reversal.2. Signal Confirmation: Confirmation of the signal of the "Inverted Head and Shoulders" pattern involves breaking the neck.
When the price breaks the neck in the direction of the trend, it can be considered a signal to enter a position.3. Setting Goals and Stop Loss Levels: Similar to the "Head and Shoulders" pattern, traders can use the "Inverted Head and Shoulders" pattern to determine the levels of goals and stop loss levels.
The target can be a level that corresponds to the height of the pattern, and a stop loss can be placed below the neck to protect against potential losses.It is important to remember that the successful use of the "Inverted Head and Shoulders" pattern requires practice, experience and additional confirmatory analysis.
Traders often combine this pattern with other tools and strategies to increase the reliability of signals and make informed decisions.
