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Inverse Head And Shoulders Chart Pattern

Patrick Stockdale
Written by Patrick Stockdale | May 5, 2022

What Is An Inverse Head And Shoulders Pattern?

In technical analysis, an inverse head and shoulders chart pattern, also known as a "head and shoulders bottom", is a bullish price reversal chart pattern formation.

It is shaped like the outline of an upside-down head and shoulders and it signals that the price of a market may reverse from bearish price action to rising bullish price action.

Traders use the inverse head and shoulders as a bullish signal and look to buy when the price breaks out above the neckline area of the pattern.

Inverse Head And Shoulders Components

Inverse head & shoulder pattern components

In order to identify an inverse head and shoulders chart pattern, there will need to be certain components visible on the price chart.

The 4 components of an inverse head and shoulders pattern are:

  • An inverted left shoulder: This is the left-hand side of the inverse head and shoulder and it is shaped like a small "U" shape in the price.
  • An inverted head: This is the center part of the pattern and it is shaped like a larger U shape relative to the shoulders.
  • An inverted right shoulder: This is the right-hand side of the pattern and it is shaped like a small U shape similar to the left shoulder.
  • A neckline resistance level: The neckline is the resistance level of the inverse head and shoulders pattern and it is the area where the buying of the pattern occurs.

Drawing an inverse head and shoulders involves combining these components of the upside-down left shoulder, the upside-down head and the upside-down right shoulder together with a neckline resistance level.

Inverse Head And Shoulders Chart Pattern Examples

Below are visual examples of inverse head and shoulders chart patterns.

Example Of An Inverse Head And Shoulders Pattern In The Stock Market

Inverse head & shoulder pattern in stocks

In the above price chart of Alibaba stock, an inverse head and shoulders pattern formed.

After the price of Alibaba breaks out of the neckline, it leads to a bullish trending price move in the stock.

Example Of An Inverse Head And Shoulders Pattern In The Forex Market

Inverse head & shoulders forex

In the above price chart of the Eur/Usd currency pair, an inverse head and shoulder pattern formed.

After the price of the market breaks out over the neckline, it leads to a large bullish price movement in the price of the Eur/Usd currency pair.

Example Of An Inverse Head And Shoulders Pattern On A Shorter Timeframe Price Chart

Example Of An Inverse Head And Shoulders Pattern On A Shorter Timeframe Chart

In the above short-term 1-minute price chart of Direxion Daily Gold Miners Index, an inverse head and shoulders pattern formed which led to a bullish price move over the next few hours.

Example Of An Inverse Head And Shoulders Pattern On A Longer Timeframe Price Chart

Inverse head and shoulders pattern on longer term price charts

In the above longer-term weekly price chart of the S&P 500 index, an inverse head and shoulders pattern formed.

It resulted in a multi-year bullish price trend after the price broke out of the neckline resistance level.

Inverse Head And Shoulders Pattern Timeframes

An inverse head and shoulders pattern can form on any timeframe from as low as a 1-minute price chart to as high as a weekly or even monthly timeframe price chart.

Popular timeframes that traders use to trade the inverse head and shoulders chart pattern are:

  • 1-minute price charts: Scalpers and high-frequency traders will use the 1-minute price chart to find and trade inverse head and shoulders patterns
  • 30-minute price charts: Day traders will use the 30-minute price charts to find day trading opportunities using an inverse head and shoulders pattern.
  • Daily price charts: Swing traders will typically use daily price charts to find swing trading opportunities with the inverse head and shoulders pattern.
  • Weekly price charts: Longer-term traders will use the weekly price charts to find buying opportunities by using the inverse head and shoulders pattern.

How To Find Inverse Head And Shoulders Patterns

The methods for finding inverse head and shoulders chart patterns are:

  • Manually scanning through price charts: Traders can manually browse and scan price charts to try and find inverse head and shoulders patterns.
  • Using an inverse head and shoulders scanner: Traders can use a simple chart pattern scanner to help find inverse head and shoulders patterns in the market.
  • Browsing expert's Twitter feeds: A trader can check technical analysis traders on Twitter to help find inverse head and shoulders patterns.
  • Read trading newsletters: A trader can read trading and technical analysis newsletters to held find the inverse head and shoulders pattern.

Inverse Head And Shoulders Pattern Benefits

The benefits of the inverse head and shoulders chart pattern are:

  • It helps traders find price reversals in the market: An inverse head and shoulders can help a trader find a price reversal from bearish price action to bullish price action.
  • It provides logic and understanding to the price action: An inverse head and shoulders pattern can help new traders logically understand the market conditions in a financial market.
  • It can help traders catch large bullish price moves: An inverse head and shoulders pattern can help a trader catch new bullish price trends early.
  • It is easy to understand: There is a very little learning curve with inverse head and shoulders patterns and new traders learn it fast.
  • The reward to risk ratio can be high: An inverse head and shoulders pattern can offer a high reward to risk ratio. It is not uncommon for this pattern to offer a $4+ reward for every $1 risked.
  • It works on any timeframe and in any market: The inverse head and shoulders pattern can be applied to any market that pattern forms and on any timeframe chart without any restrictions.

Inverse Head And Shoulders Pattern Limitations

The limitations of the inverse head and shoulders chart pattern are:

  • It can fail to complete: The inverse head and shoulder can fail to complete the breakout and completed break down stopping out buyers.
  • It can cause many false breakouts: An inverse head and shoulders can attempt to break out of the neckline on multiple occasions and then fail. This tends to frustrate new traders in particular.

These are the limitations a trader should be aware of when trading the inverse head and shoulders pattern.

Inverse Head And Shoulders Formation Duration

The duration of time an inverse head and shoulders pattern will take to form depends on the timeframe of the price chart.

Popular examples of how long an inverse head and shoulders pattern takes to form include:

  • Over 3 hours minimum to form on a 1-minute price chart: An inverse head and shoulders pattern will typically take a minimum of 3 hours to form on a 1-minute price chart.
  • Over 90 hours minimum to form on an hourly price chart: An inverse head and shoulders pattern will typically take over 90 hours to form on the hourly price chart.
  • Over 90 days to form on a daily price chart: An inverse head and shoulders pattern will typically take a minimum of 90 days to form on a daily price chart.

Frequently Asked Questions About The Inverse Head And Shoulders Pattern

Below are frequently asked questions about the inverse head and shoulders chart pattern.

Is An Inverse Head And Shoulders Pattern A Bullish Or Bearish Signal?

An inverse head and shoulders chart pattern is a bullish signal that indicates that the price of a financial market will increase and become bullish after the price breaks out from the pattern.

Where Is The Buy Entry Point Of An Inverse Head And Shoulders Pattern?

The buy entry point of an inverse head and shoulders chart pattern is when the price of the financial market breaks out above the neckline part of the pattern.

What Is The Difference Between A Head And Shoulders Pattern And An Inverse Head And Shoulders Pattern?

The differences between a head and shoulders price pattern and an inverse head and shoulders pattern are:

  • It's shape: A head and shoulders pattern is shaped exactly like a head and two shoulders whereas an inverse head and shoulders is shaped like a head and shoulders turned upside down.
  • What it indicates: A head and shoulders pattern indicates that the price of a market may go lower whereas an inverse head and shoulders indicates that the price of a market may go higher.