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Inverse Head-and-Shoulders Forex Pattern

The Inverse Head-and-Shoulders formation is a mirror image of the head-and-shoulders pattern.  Therefore, you can apply the same characteristics, potential problems, signals, and trader's point of view from the preceding presentation.

inverse_head_and_shoulders

The underlying currency broke out of the downtrend ranged by the xx'-yy' channel. The currency retested the previous resistance line (the rally number 3), now turned into a support line. Among the three consecutive rallies, the shoulders (1 and 3) have approximately the same height, and the head is the lowest. Prior to point A, the neckline was a support line. Once this line was broken, it turned into a significant resistance line. The price bounced off the neckline twice, at points В and C.

The neckline was eventually broken at point D, under heavy volume. As the significant resistance line was broken, a retracement could be expected to retest the neckline (E), now a support line again. If it held, the price was expected to eventually rise to around level F, which is the price target of the head-and-shoulders formation.

The price objective is approximately equal in amplitude to the distance between the top of the head and the neckline, and is measured from the breakout point D.

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