An inverse head and shoulder pattern is purely a reversal pattern. It occurs in downtrends only. This pattern contains 3 inverse peaks. The first inverse peak (shoulder), the price falls and then rises. The second inverse peak (head), the price falls below the first peak and then rises. The third peak (shoulder), the price falls again but only to or near the level of the first peak and rises again. The key to this pattern is the neckline. The neckline is the price level where the 3 peaks rise to. Once a stock closes above the neckline, this is the signal the reversal may happen. We will include as many examples as possible to give you a clear view on how to identify this pattern.
