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.
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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