Lessons

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How to trade an inverse head and shoulders chart pattern?

Complete Cryptocurrency Trading Course

When the price approaches neckline after forming right shoulder, you are waiting to see what will happen.

The close above will give you a potential trade opportunity.

However, if the price doesn’t close above the neckline, we do not have a valid pattern, and we can enter a sideways market for a while.

The close above neckline is the first confirmation you need.

The next confirmation would happen on the retest of the broken neckline.

If price forms bullish sign on the retest of the neckline from above, you got the second confirmation and you can take the trade opportunity if it offers profitable risk-reward.

The sign you are waiting on the retest could be bullish pin bar, bullish engulfing or any other bullish formation.

In some cases, the ideal retest won’t happen but the price will front run the support (neckline).

Once you see that situation, it is a clear sign of market bullishness.

The market is impatient and can’t wait for a full retest and wants to buy and secure its position.

Let’s look at an example of an inverse head and shoulders chart pattern.

In the previous lesson, we mentioned that sometimes there will be no perfect retest.

On this example, we can see what we meant by that.

Sometimes, you will have the wick that will touch neckline and bounce off. If that happens, it is a clear sign that buyers are active and that neckline is acting as a support.

On the second test, we saw spinning top forming above neckline which is one more bullish scenario where the coin or trading pair is being bought before potential support.

When support gets frontrunned, the setup becomes even more bullish.

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