The inverse head and shouldersThe inverse head and shoulders pattern is a chart pattern that traders look for when trying to identify potential reversals in the trend of a security. It consists of three troughs... More pattern is a chart pattern that traders look for when trying to identify potential reversals in the trend of a security. It consists of three troughs, with the middle trough being the lowest. This low point is referred to as the “head” of the pattern, and the two higher troughs are referred to as the “shoulders”.
The pattern usually forms in a downtrend, and suggests that the security is likely to reverse and move upwards. It’s important to note that the pattern is only valid if the two shoulders are roughly equal in height and, more importantly, the head is significantly lower.
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