Inverse Head & Shoulders Bottom Reversal Pattern Video Lecture | Chart Pattern Trading: Learn the Fundamentals - Business Basics

good afternoon everyone this is
Christian with perfect stock alert calm
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please refer a friend or I'll hit you in
the face with a brick what I can't I
can't say that today we're going to be
looking at the inverse Head & Shoulders
pattern also known as the Head &
Shoulders bottom reversal pattern don't
let this chart with all the annotations
on it
spook you it's really not as complex as
it looks and I'll simplify it for you
the inverse Head & Shoulders pattern is
basically the Head & Shoulders pattern
upside down or turned on its head if you
will really quite simple if you know
what the Head & Shoulders pattern is and
you know what the inverse Head &
Shoulders pattern is like I said it's
upside-down the only difference or the
biggest difference is that confirmation
volume on the Head & Shoulders pattern
is important but in the case of the
inverse Head & Shoulders pattern it's
paramount you must have it okay let me
show you what we have here first off
we're looking at a downtrend you've got
downtrend in order to have a reversal or
inverse Head & Shoulders pattern so if
you don't have a downtrend and you think
you're seeing an inverse Head &
Shoulders pattern you're probably not
you have to first have a downturn in
this case we have that right here right
nice move only low and we know its
downtrend because the high points are
going lower every single time the low
points are going lower every single time
is trending down in this particular case
at the bottom we have a inverse Head &
Shoulders pattern first shoulder or the
left shoulder right here okay there's up
here the head goes lower than the
previous low point right here is the
previous low point left shoulder now we
have the head going lower you have to
have that okay and then you have the
right shoulder formation now in both
cases of the Head & Shoulders pattern
and the inverse Head & Shoulders pattern
typically you're going to see the the
low of the right shoulder and the low of
the left shoulder roughly equal with one
another okay that's right they can be
caddywhompus if you will they could be
slightly askew in one way the other
either in the right
could not be as deep could be a little
bit shallower or it could be even deeper
than the left shoulder but in most cases
they will be symmetrical the neckline of
the inverse head and shoulders pattern
is formed just like the neckline on the
head and shoulders pattern you basically
look at the start of the head or the
reaction high of the left shoulder here
and at the end formation of the head or
they I should say the reaction hi the
inflammation of the head and the start
of the right shoulder those two points
you could draw a trendline across those
two points and that will be an important
element for you is known as the neckline
I've marked it right here okay the
neckline can be in different angles in
this particular case we are showing a
downtrend here if it had been pointing
up and just say that this head had gone
up higher and then pulled back down like
that you would have a one that was
turning up this would be more bullish a
more bullish reversal signal if it was
pointing up because it's pointing down
it's less bullish okay all right go
ahead and draw this thing out again left
shoulder head formation right shoulder
okay its neck line right here is
paramount because until price activity
breaks above that closing above that
line you do not have a confirmation of
an inverse head and shoulders pattern
okay it is not complete until it had
broken through that and that's true with
the head and shoulders pattern as well
and in this particular case though it's
going to be paramount that you see
increase on volume on that breakout
remember if I get a breakout you want to
see volume confirming that that's by
pressure breaking out about there
otherwise you can be getting yourself
into a situation where you have
basically a false rally and set up when
you're trading wrong side another thing
to note here is when you're looking at
the neckline you'll notice it was
finding resistance it marked it
resistance here and here but once they
broke out above it it's quite common to
pull back down and test that neckline
and you'll find support that
I'm around okay this creates a secondary
by opportunity so filled by on the exact
breakout point and you'll oftentimes get
an opportunity to buy in on the test the
touch or test of the support of the old
neckline volume levels on the formation
of the initial left shoulder here should
or can be extreme cell pressure that
time period it's selling is still very
strong right there that's fine doesn't
actually have to happen the first half
of the formation is not as important as
the second half when it comes to the
volume point all right so just keep that
in mind volume is important but it's
more important on this side of the
pattern as opposed to this side over
here okay one telltale sign I like to
watch for when I'm looking at the
inverse head and shoulders pattern is
just the the argument between price and
volume you'll notice here when you pull
down to this level at about 32 on this
particular chart then bounce back up
note the volume level that you're seeing
here okay except for this one day it's
all pretty small then you pull off way
down here lower than previous so prices
falling lower telling you that there's
even more cell pressure however volume
here is actually increasing on the buy
side and that's telltale that this will
not be a sustainable move to the
downside because by pressures increasing
rapidly and that's going to force what
it's going to force the price to back to
the upside it pulls back down again and
now you'll notice that we're not going
lower so we're seeing a potential
reversal and again the breakout
confirmed by the high pressure as in the
head and shoulders pattern the inverse
head and shoulders pattern can give you
a target based on the extreme high point
or in this case I'm sorry low point of
the head at 26 in this case draw a
straight line from that point all the
way up to the neckline that distance or
that
amount of move there will be duplicated
from the breakout point here's the
breakout point where price close above
that necklines you can take this
distance and expand it here and get a
projection of how much or how far you
think price is going to go remember
that's just a target it's only a guide
not to be you know I expected to go
exactly to this penny that's not
actually very wise okay so look at it
this way is meaning something that you
can use for a target nothing more but it
gives you an idea of what to expect when
you do see one of these breakouts are
moving to the upside one more item to
note regarding the inverse Head &
Shoulders pattern also on the Head &
Shoulders pattern itself from time to
time one of the tell-tale tees that
you'll start to sees if you draw it
older or a longer-term trend line you'll
notice from this high point this high
point you can draw a line there and draw
it out and you'll see that the pattern
will start to break through that and
that's telling you that this is starting
to weaken the downturn started to weaken
so when you break out above it and come
back up here and you're no longer
respecting it as resistance you're now
treating it as a support that's another
way of spotting these developing okay
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