As you may assume from its name, it is opposite of the head and shoulders chart pattern.
While the head and shoulders pattern was used as a reversal sign in an uptrend, inverted head and shoulders chart pattern is used as a reversal sign in a downtrend.
Let’s look at an example:
Inverse head and shoulders is chart pattern that slowly but steadily turns the bearish market into bullish.
That’s the main reason why it is considered bullish, not because of its formation but its meaning.
After dropping for some time, the price is approaching an area of interest.
In that area, it establishes local support and forms the left shoulder.
At that moment, downtrend momentum is still active.
After creating the left shoulder, it pulls back and forms the high in the area that will be later very important.
The name of that area is neckline which acts as a resistance.
It starts declining again forming lower low (Head).
After the head was formed, we have half of the pattern already created but without any sign of bullishness.
By forming a lower low, there are no signs of a reversal in the market.
After reaching another area of interest and forming the head, it pulls back again but this time much stronger up to the area of previous high forming equal highs.
By not forming lower high, it gives us the first sign of weakness in the trend.
After forming equal highs, we are still in a downtrend with lower low and equal highs but the downward momentum is not that strong as it was before.
Finding resistance in the area of previous high, the new drop is coming again but this time it is not reaching lower low.
Not only that it didn’t make lower low but it formed higher low and changed the entire market situation.
After making higher low, the downtrend momentum is gone and now it is the question if we are either going to enter the sideways market or make entire trend reversal and starts trending upward.
Milos is an independent trader, with a background in journalism and publishing. Nomadic by nature, he’s lived in four different countries this decade. He’s fascinated by Blockchain technologies’ potential to reshape all aspects of our lives. Milos got into Bitcoin while completing his degree and hasn’t looked back since, writing about anything crypto-related. He is the co-founder of the Cryptoaims and he has a strong passion to educate people about this revolutionary technology.