Inverse Head and ShouldersTechnical Analysis
Inverse head and shoulders patterns consist of a swing low, a lower swing low, and a 3rd swing low equal to the first. Two peaks/swing highs separate each of the three troughs. The middle trough is lowest. This pattern appears only at the end of a downtrend and into a reversal uptrend. A down sloping line can be drawn from the first trough to the second trough. An up sloping line can be drawn from the second trough to the third trough. Another trendline can be drawn between the two peaks, called the neckline. The neckline will eventually be broken.
Entry at completion of the third swing low is a high risk entry. The neckline break is the low risk entry. The stop goes below the third swing. Scale distance between your entry and stop to the capital at risk desired.
The volume on the fall of second trough will be lower than first trough, volume on the fall of the third trough should be lower than the second trough’s volume. Volume should increase after breaking the neckline of an inverse head and shoulders.
Project the distance price will rise after breaking the neckline by measuring the pips from the lowest trough to the neckline. Add the distance to the neckline break. Price may move beyond or fall short of a take profit set at that level. Watch for swing highs near the projected distance to take profit.
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