Inverted Head and Shoulders

Head and Shoulders Inverted Formation 

The reverse head and shoulder formation also belongs to the classic price structures that reverse the trend. This structure announces the end of the downward trend.

Full formation education occurs after determining four characteristic points (1,2,3 and 4). Points (1) and (3) indicate the formation arms, point (2) means head. The last, fourth point is determined after breaking the line of the neck (marked with a thin blue line).

In the classic form of this formation, the turnover should be shaped in accordance with the price formation and the direction of the new nascent upward trend.

• The left arm is shaped on a relatively small volume.
• The head should be shaped on an even smaller volume.
• The first increase in the increased volume turnover and the subsequent decrease in the smaller volume turnover are the characteristic features of shaping the right arm in the classic form of this formation.
• An increase in the price above the neck line should take place with increased demand side activity expressed in turnover, which absorbs large supply at higher and higher price levels.

Overcoming the neck line on a high volume is a confirmation of formation and a buy signal for a given market. Any subsequent return of price to the neck line (return movement) should take place on a smaller turnover, which would confirm its corrective character in relation to the emerging new upward trend.

The size of the price movement after breaking the formation (above the breaking point- red dot) should be at least equal to the head height measured from the neck line (purple line).

Note 1: The neck line does not have to be horizontal.

Note 2: Formation "mutations" are possible, e.g. two heads.

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