Inverse Head and Shoulders

The Inverse Head and Shoulders is a chart patterns indicator used in Skyrexio Strategy Builder for pattern recognition and reversal/continuation signals.

Introduction

The Inverse Head and Shoulders is a bullish reversal chart pattern that signals potential LONG opportunities or SHORT position exits. This pattern consists of three troughs, with the middle trough (head) being lower than the other two (shoulders), indicating potential trend reversal from bearish to bullish.

How Inverse Head and Shoulders Works

Inverse Head and Shoulders is a bullish reversal chart pattern with specific characteristics:

• Three troughs structure - Left shoulder, head (lowest trough), right shoulder • Neckline formation - Line connecting the two peaks between troughs • Volume pattern - Typically increases on head, expands on breakout • Confirmation requirement - Pattern confirmed when price breaks above neckline • Target calculation - Distance from head to neckline added to breakout point

Pattern Psychology: The pattern shows bears making three attempts to push price lower, with the final attempt (right shoulder) failing to match the head's depth. This failure, combined with the subsequent breakout above the neckline, demonstrates a clear shift in market sentiment from bearish to bullish as buyers overwhelm sellers.

Key Characteristics

Attribute	Details
Category	Chart Patterns
Type	Bullish Reversal Signal
Primary Use	LONG entries, SHORT exits
Timeframe	All timeframes supported (1m to 1M)
Confirmation	Neckline break, volume, support levels

Strategy Applications

🟢 LONG STRATEGY (Primary Use)

Inverse Head and Shoulders is primarily a LONG signal - enter long positions when the pattern completes with neckline breakout.

Base Entry Order (LONG)

Base Order Condition: Inverse Head and Shoulders neckline breakout
First Condition: Inverse Head and Shoulders
Timeframe: 1H

Additional Confirmation:
First Condition: Volume
Timeframe: 1H  
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Additional Entry Orders (LONG)

Additional Entry 1: Pattern confirmation with momentum
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 50

OR

Additional Entry 2: Breakout acceleration
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

Take Profit Orders (LONG)

Rule 1: Exit condition - Pattern target reached
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

OR

Rule 2: Exit condition - Overbought warning
First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 75

OR

Rule 3: Exit condition - Bearish reversal pattern
First Condition: Head and Shoulders
Timeframe: 1H

Stop Loss Orders (LONG)

Rule 1: Stop loss - Pattern invalidated (break below neckline)
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

OR

Rule 2: Stop loss - Volume decline breaks bullish momentum
First Condition: Volume
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 3: Stop loss - Bearish momentum confirmed
First Condition: MACD Line
Timeframe: 1H
Operator: Cross Below
Second Condition: MACD Signal Line
Timeframe: 1H

🔴 SHORT STRATEGY (Secondary Use)

Inverse Head and Shoulders is used in SHORT strategies primarily as an exit signal for existing positions.

Counter-Trend Risk: Using Inverse Head and Shoulders for new SHORT entries is high-risk and should only be considered in extreme overbought conditions with very tight risk management.

Base Entry Order (SHORT) - Not recommended

New SHORT entries not recommended with Inverse Head and Shoulders pattern. Use bearish reversal patterns instead:

• Head and Shoulders

• Double Top

• Rising Wedge

Take Profit Orders (SHORT) - Exit existing positions

Rule 1: Exit condition - Inverse Head and Shoulders signals trend reversal
First Condition: Inverse Head and Shoulders
Timeframe: 1H

OR

Rule 2: Exit condition - Support level reached
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H

OR

Rule 3: Exit condition - Momentum exhaustion
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 25

Stop Loss Orders (SHORT) - Protect existing positions

Rule 1: Stop loss - Inverse Head and Shoulders confirms uptrend
First Condition: Inverse Head and Shoulders
Timeframe: 1H

OR

Rule 2: Stop loss - Neckline breakout confirmed
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H

OR

Rule 3: Stop loss - Volume confirms breakout
First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

Advanced Strategy Combinations

Multi-Timeframe Inverse Head and Shoulders Analysis (LONG)

Setup

Higher Timeframe Confirmation:

• Daily: Inverse Head and Shoulders formation + RSI < 40

• 4H: Trend strengthening (EMA(21) turning up)

• 1H: Neckline breakout + Volume confirmation

Execution

Entry: 1H neckline breakout Target: Head-to-neckline distance from breakout Stop: Below right shoulder

Major Support Bounce (LONG)

Setup Process:

1. Price approaches major support level

2. Inverse Head and Shoulders forms at support

3. Right shoulder shows volume increase

4. Neckline breakout confirms pattern

Execution:

• Base Order: Inverse Head and Shoulders neckline break

• Additional: RSI momentum confirmation

• Take Profit: Resistance levels, pattern targets

• Stop Loss: Break below right shoulder

Risk Management Guidelines

Position Sizing

Strategy Type	Position Size	Conditions
LONG Strategy	Standard	Pattern at support with volume
SHORT Strategy	Avoid new entries	Exit existing positions only
High Volume	Increase confidence	Larger position acceptable
Low Volume	Reduce size	Wait for confirmation

Pattern Reliability Factors

High Reliability

✅ Forms at established support levels ✅ Volume increases on head formation ✅ High volume on neckline breakout ✅ Clear three-trough structure

Low Reliability

❌ Forms in middle of trading range ❌ Shoulders at different levels ❌ Low volume on breakout ❌ Compressed time formation

Best Practices

For LONG Strategies

1. Wait for neckline break - Pattern isn't confirmed until breakout

2. Volume confirmation - Ensure high volume on neckline breakout

3. Support context - Best results at major support levels

4. Target management - Take profits at measured move targets

For SHORT Strategies

1. Exit signal only - Use primarily to exit existing SHORT positions

2. Quick recognition - Exit immediately upon pattern completion

3. No new entries - Avoid new SHORT positions with this pattern

4. Risk management - Protect capital from major reversals

Common Mistakes to Avoid

• Early entry - Entering before neckline breakout confirmation

• Wrong direction - Going SHORT on a bullish reversal pattern

• Volume ignored - Trading without volume confirmation

• Incomplete pattern - Trading before all three troughs form

Market Conditions Analysis

Market Type	LONG Strategy Effectiveness	SHORT Strategy Effectiveness
Uptrend	🟡 Medium (continuation)	🔴 Low (counter-trend)
Downtrend	🟢 High (major reversal)	🔴 Very Low (against trend)
Ranging	🟢 High (at support)	🟡 Medium (exit signal only)
High Volatility	🟢 High (clear patterns)	🔴 Low (whipsaws)
Low Volume	🔴 Low (wait for confirmation)	🔴 Very Low (avoid)

Related Patterns

Pattern	Relationship	Link
Head and Shoulders	Opposite bearish signal	Head and Shoulders
Double Bottom	Similar bullish reversal	Double Bottom
Falling Wedge	Bullish continuation	Falling Wedge
Bullish Flag	Bullish continuation	Bullish Flag

Conclusion

Inverse Head and Shoulders is primarily a LONG signal indicating potential major trend reversal from bearish to bullish. This is one of the most reliable bullish reversal patterns in technical analysis, especially when it forms at major support levels with proper volume confirmation.

Key Takeaways

• PRIMARY USE: LONG entries after neckline breakout

• SECONDARY USE: SHORT exits when holding positions

• NEVER: New SHORT entries with this bullish pattern

• ALWAYS: Confirm with Volume and wait for complete pattern formation

Success with Inverse Head and Shoulders requires patience to wait for all three troughs to form and neckline breakout confirmation. The pattern's reliability increases significantly when it forms at major support levels with proper volume confirmation.

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