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Discovering the secrets of the inverse head and shoulders pattern

Today, we’re talking about a pattern traders often use called the “inverted head and shoulders.” It sounds fancy, but it’s really just a helpful way to predict what might happen in the market. And the best part? It’s simpler than you think!

Let’s read more.

What is an inverted head and shoulders pattern?

The inverted head and shoulders pattern occurs when the price of a stock or asset makes three distinct moves: a dip, a deeper dip, and then another dip that mirrors the first. This creates an upside-down human head and shoulders pattern.

You may also like: Insights into market trends and reversals using Inverted Hammer

Components of the pattern

inverted head and shoulders pattern
  1. The left shoulder

This is the first dip in the price. Traders often see this as a typical downturn, but little do they know that it’s the start of something more significant.

  1. The head

This is where many investors might panic or sell, thinking the asset is on a downfall. If you see an inverted head and shoulders design, this may be a good purchase.

  1. The right shoulder

The third dip is usually similar in depth to the left shoulder. When this occurs, savvy traders are on high alert for a breakout, i.e., a significant price increase.

  1. The neckline

Connecting the tops of the two shoulders is what traders call the “neckline.” If the price breaks above this level, the asset should continue to rise.

How to spot the pattern

  • Look for a downtrend: The pattern typically forms after an extended period of declining prices.
  • Identify the shoulders and head: Watch for the three distinct dips we discussed earlier.
  • Locate the neckline: Draw a straight line connecting the peaks of the shoulders. This is your neckline.
PartWhat to Look for
Left shoulderFirst dip in the price
HeadDeeper, central dip
Right shoulderSecond, usually symmetrical, dip
NecklineLine connecting tops of shoulders

How to use the pattern for trading

  1. Calculate the target price

Calculating the inverse head and shoulders pattern target can give you an idea of how high the price might go. Measure the distance from the neckline to the bottom of the head and add that number to the neckline. This will give you a good estimate of the target price.

  1. Be patient

It’s crucial to wait for the price to break above the neckline to confirm the pattern. Premature trading can result in losses.

  1. Set stop-loss orders

Setting a stop-loss order just below the right shoulder can help minimize losses in case things don’t go as planned.

Real-world examples and applications

Asset TypeTrigger Events for Pattern Formation
StocksEarnings reports, product launches
CommoditiesEconomic data, currency fluctuations
ForexGeopolitical events, economic indicators
BondsInterest rate changes, economic policy

Benefits and limitations


  • Easy to spot: Once you know what to look for, this pattern is relatively straightforward to identify.
  • Reliable: It’s one of the more dependable indicators of a bullish trend.
  • Versatile: This pattern can be found in various time frames and markets.

Also Read: What do these symmetrical triangle patterns suggest?


  • False signals: While generally reliable, the pattern can occasionally give a false breakout signal.
  • Requires confirmation: Traders often wait for other indicators like trading volume to confirm the pattern.
  • Not a guarantee: The financial markets are influenced by a multitude of factors, and no single pattern can predict them with 100% accuracy.

Practical tips for beginners

  • Practice spotting: Before you risk any real money, practice spotting this pattern on historical charts or paper trading platforms.
  • Pair with other indicators: For better accuracy, use other technical indicators like the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD).
Tips for BeginnersDescription
Practice spottingUse historical charts to identify patterns
Pair with other toolsCombine with RSI, MACD, etc., for improved accuracy
Keep learningThe more tools you know, the more versatile you become in trading


The inverted head and shoulders pattern is a tried-and-tested method that traders have been using for years. The pattern suggests that the value of an asset is likely to go up, so it’s a good idea to pay attention.

So, the next time you’re finding it difficult to glance through the complex graphs and data, keep an eye out for the distinct shape of an inverted head and shoulders pattern. It could be your key to making a profitable trade!


What is the opposite head and shoulders pattern?

The inverse head and shoulders pattern is the opposite of the head and shoulders pattern and indicates that the price of an asset may be about to reverse from a downward to an upward trend. The design resembles an inverted head and two shoulders with three consistent peaks and lows.

How reliable is an inverse head and shoulders pattern?

When it comes to bullish reversal patterns, the inverse head and shoulders pattern is usually considered to be a reliable pattern. In order to provide traders and analysts with important data on possible trend reversals, it is used by both groups.

Is inverse head and shoulder bullish or bearish?

The inverse head and shoulders pattern is bullish. It signals the end of the downward trend and the start of the upward trend. When the upward trend breaks over the resistance line, traders take a long position and wait for the volume to rise and confirm the trend has changed.

Is the head and shoulders pattern good for stocks?

One of the most common reversal patterns is the head and shoulders pattern. It is crucial to keep in mind that it follows an uptrend and, when complete, often indicates a significant trend reversal. Although symmetrical shoulders on the left and right are ideal, this is not a requirement.

What is the head and shoulder pattern in intraday?

You can see head-and-shoulders patterns, which consist of a central peak surrounded by two smaller peaks, across an intraday stock chart. Although these triple-peaked chart patterns are among the simplest to interpret wrongly, they may be useful indicators of a significant trend reversal.

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