Inverse Head and Shoulders

 

The Inverse Head and Shoulders pattern is a bullish reversal pattern that signals a potential trend change from bearish to bullish. Here’s how you can trade it effectively:

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Step-by-Step Guide to Trading the Inverse Head & Shoulders Pattern

1️⃣ Identify the Pattern

• Left Shoulder: The price declines, forms a low, and then rises.

• Head: A lower low is created, forming the head of the pattern.

• Right Shoulder: The price drops again but makes a higher low than the head.

• Neckline: A resistance level that connects the peaks between the shoulders.

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2️⃣ Confirm the Breakout

• The pattern is confirmed when the price breaks above the neckline.

• Look for a high volume breakout to increase reliability.

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3️⃣ Entry Strategy

✅ Aggressive Entry

• Enter as soon as the neckline breaks.

• Use a tight stop-loss below the right shoulder.

✅ Conservative Entry

• Wait for a retest of the neckline after the breakout.

• If the price bounces, enter with confirmation.

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4️⃣ Set Stop-Loss

• Place your stop-loss below the right shoulder or below the head for more security.

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5️⃣ Take Profit Target

📍 Measured Move:

• Calculate the height of the head (from the neckline to the lowest point).

• Project this height above the neckline as your target.

📍 Partial Profit Booking:

• Take partial profits at 1:1 risk-reward ratio.

• Let the rest ride with a trailing stop.

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Bonus Tips

🔥 Look for Confluences

• Check RSI for bullish divergence.

• Use moving averages (50 EMA, 200 EMA) for extra confirmation.

🔥 Avoid Fake Breakouts

• Ensure the breakout is sustained with strong volume.

• If price closes back below the neckline, reconsider your trade.