Inverse Head and Shoulders

The opposite of the bearish head and shoulders is the bullish inverse head and shoulders. This pattern challenges support and, upon failure, leads to an expected bullish rally. An example of this is seen in Figure 6.2.

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Figure 6.2 Inverse head and shoulders and confirmation (Chart courtesy of StockCharts.com)

The price direction starts out as bullish until the last four months of 2012. Price declines beneath support as the inverse head and shoulders forms. In the expected pattern, price rises above support and continues its long-term primary trend.

Key Point

All reversal signals need to be confirmed in order to lead ...

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