It is similar to the standard Head and Shoulders pattern, except that it is inverted.
The pattern contains three successive lows with the middle-low (“head”) being the deepest and the two outside lows (“shoulders”) being shallower.
Ideally, the two shoulders would be equal in height and width
Traders typically enter into a long position when the price rises above the resistance of the neckline.
The pattern begins with a downtrend with two lower lows (1 & 3) and two lower highs (2 & 4) which form the first and second bottom.
Point 5 makes a higher low which is higher than both points 3 and 1 and this forms the third bottom.
This illustrates that the downward trend is coming to an end although the reversal is confirmed when the price pushes up through the neckline at point 6 moving up pass the previous high at point 4.
The pattern is confirmed once the price breaches the neckline resistance and continues higher (2 & 4).
It is also worth observing whether the descent into point 3 is less steep than into point 1 and whether the descent into point 5 is less steep than point 3.
Stronger preceding trends are prone to more dramatic reversals.
Volume trends are exactly the same as in Head and Shoulders, where it is usually the highest at the left and trending downward.
If you liked this article, then please subscribe to our Newsletter Services for Forex Related updates. You can also find us on Facebook and can subscribe to our YouTube channel. You can also join our Telegram Channel for real-time trading analysis and discussion. Here is our service sitemap. If you have any confusion please leave your comments below.