Inverse Head & Shoulders

The Inverse Head & Shoulders is the bullish mirror image of the standard pattern, signaling reversal of a downtrend. It consists of:

• Left Shoulder: A decline followed by a rally.
• Head: A deeper decline forms the lowest point, then another rally.
• Right Shoulder: A shallower decline that fails to reach the head’s depth.
• Neckline: Resistance across the highs between shoulders and head.
• Breakout: Confirmed when price closes above the neckline with volume.

This pattern depicts seller exhaustion and the re-emergence of buyers:

• Left Shoulder: Bears push price lower but demand responds.
• Head: Sellers make one more push to a deeper low, but buying pressure increases.
• Right Shoulder: A final attempt to drive lower fails to exceed the head, showing sellers are losing control.
• Neckline break: Buyers regain dominance, launching a new uptrend as resistance breaks.

Bulkowski’s data confirms its strength:

• Upward breakout frequency: ~68%.
• Failure rate: ~11%.
• Average rise after breakout: ~35%.
• Throwback frequency: ~58%.
• Target met rate: ~67%.

This makes it one of the most reliable bullish reversal patterns.

Entry: Buy on breakout above the neckline. Aggressive traders may enter during right shoulder formation.

Stop loss: Below the right shoulder (conservative) or below the head (extra conservative).

Targets: Minimum = distance from head to neckline projected upward. Secondary = prior resistance zones or extensions.

Invalidation: Breakdown below the head after formation negates the setup.

• Neckline slope: An upward-sloping neckline increases reliability; downward slopes weaken it.
• Volume signature: Declining volume into the head and right shoulder, followed by surge on breakout, is ideal.
• False breakouts: Neckline clearance without volume often stalls.
• Symmetry: More symmetrical shoulders tend to perform better.

• If the head isn’t clearly deeper than shoulders.
• If neckline resistance is extremely strong and repeatedly unbroken.
• If breakout volume is weak.
• If broader market is bearish, reducing bullish odds.