Inverted Head and Shoulders
This is a powerful reversal pattern providing you know how to use it you can buy at very advantageous times.
It reverses down trends as it is the point in which the market ceases to make lower lows and starts to make higher lows and higher highs.
A strong bear market should make lower lows and lower highs, the point in which it starts to make higher lows and higher highs a trader should consider a trend reversal.
One point of strong caution is in advanced down trends SMALL inverted head and shoulders usually give a small rally and then a dump to lower lows. An advanced lesson on this can be viewed on our youtube channel.
⇑ ⇑ ⇑ ⇑ Inverted Head and Shoulders
The chart opposite shows an inverted head and shoulders. These patterns also have a mid-line much like the head and shoulders. Two closes above a mid-line of an inverted Head and Shoulders completes the pattern and gives you the green light to buy shares in that company.
See how we used as many highs of candles to draw our mid-line. (A little like a descending sell line!).
Inverted Head and Shoulders task!
Spotting an inverted Head and Shoulders (H&S) is not always as simple as it sounds! Often the pattern will present as an obscure series of peaks and troughs. The chart overleaf has an inverted head and shoulders within it.
Your task is to first identify the inverted H&S and then draw a ‘sell line’ for the pattern. When you draw a sell line on a pattern like this, you never use that sell line for selling, you use it as a buy signal when the line is broken.
The sell line for this pattern should slope downwards, which on this particular pattern would mean you get a buy signal slightly earlier.
Don’t forget if you need extra help then listen to the audio file for this eguide to help you draw the line.
Your final task for this eguide is here!
This chart will separate the men from the boys! There is TWO head and shoulders on this chart – the first is inverted – the second is a normal head and shoulders.
Both patterns require mid-lines to be drawn upon them.
The FIRST thing you need to do is identify the two patterns.
When you spot the inverted H&S we have given you two small arrows that highlight two candles that will touch the mid-line if you draw it correctly. You will find that the right shoulder of this pattern is very shallow once the mid-line is in place.
The right hand side of this chart is an established and confirmed standard H&S. This pattern also needs a mid-line placed upon it. We have not given you any arrows for this one. If you would like a hint then we would say look for a horizontal mid-line for this one.
An interesting point about the standard H&S is it’s price target is lower. So if you saw this chart you would know from our measuring technique taught on our youtube channel that the price almost certainly will head lower short term.
This is a hard task! So do not get disheartened if you struggle. If you can draw the lines effectively here then you are ready to draw your own lines on your own charts. Give it a go and check your lines against our audio answers!