What is an Inverse Head and Shoulders?

Inverse Head and Shoulders Definition. An Inverse (or Reverse) Head-and-Shoulders is a bullish reversal pattern that is familiar to technical analysts and forex traders. It consists of a series of three consecutive rallies, such that the first and third rallies, the “shoulders”, have approximately the same height and the middle one, the “head”, is the highest. The support line formed by a line connecting the bases of the two shoulders is known as the “neckline”. The neckline need not be exactly horizontal. In most cases, it may be up or down, but most forex traders believe the signal is more reliable if the slope is tilted upward, thereby confirming an impending rise in price. When the neckline is broken, the upward expectation price point is equivalent to the amplitude of the “head” from the “neckline”. An Inverse Head-and-Shoulders can also be “flipped” to form a bearish reversal pattern. The diagram shown below, taken from a popular forex tutorial on the Internet, illustrates the various characteristics of this easily recognizable chart pattern. A prudent forex trader would place an order just above the neckline to catch the anticipated upswing.

Inverse Head and Shoulders Diagram

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.