Continuation Head and ShouldersTechnical Analysis
The head and shoulders is usually a reversal but can also appear as a continuation pattern. A continuation head and shoulders is the same as a reversal head and shoulders pattern, but the prior trend is opposite of expected. You will see a bearish head and shoulders top in a downtrend, and a bullish head and shoulders bottom in an uptrend. This will usually appear confusing until the neckline of the pattern is broken.
In an uptrend, you will see a bullish inverse head and shoulders formation. A trough will form, followed by a peak and a second lower trough. This will be followed by a second peak and a third trough that is higher than the second trough. The neckline will probably, but not always, slope upwards. The pattern completes when the neckline is broken and a trough that is higher than all previous troughs forms. This should be followed by a resumption of the uptrend.
In a downtrend, you will see a bearish head and shoulders formation. A peak will form, followed by a trough and a higher second peak. It’s followed by a second trough, and a third peak that’s lower than the second peak. You can draw a trendline using the two troughs, it will usually slope downward. The pattern completes when the neckline is broken and new peak forms below all previous peaks. The downtrend should then resume.
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