Inverted Head and Shoulders
An Inverted Head and Shoulders is a reversal pattern consisting of three lows with the Head represented as central low being the lowest peak of the pattern and the flanking peaks as the shoulders.
The inverted head and shoulders represents a decline to a new low and a rally to immediate resistance followed by a second decline to a lower level then a third, more modest decline and rally through resistance.
A ‘neckline’ may be drawn through the pattern reaching from the top of one ‘shoulder’ to the other, with the inverted head and shoulders a breakout through this line represents a good buy opportunity whereas with a normal head and shoulders a breakout through this line’s counterpart (the neckline representing the uptrend) would indicate a good sell opportunity.
Head and shoulders patterns are considered to be among the most important of all reversal patterns as they are both common and reliable.