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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Head and Shoulders Formations

Head and Shoulders formation

Formation of the head and shoulders belongs to the classics of technical analysis and is one of the basic price structures reversing the upward trend. This price structure consists of three peaks shaped at the top of the upward trend. The left peak (left shoulder) and the right top (right shoulder) are shaped at a slightly lower level than the central maximum (head).

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 piercing the neck line (marked with a thin blue line).

The maintenance of the volume of turnover is a very important element in shaping this price structure.

• The amount of rotation during shaping the head should be less than during shaping the left arm. This behavior of turnover is the first sign of weakening of the upward trend.
• The right arm should be shaped on an even smaller volume of rotation.
• The price drop below the neck line should take place on the increased turnover volume, which proves the aggressive approach of the supply side, which quickly satisfies the reported demand at ever lower price levels.

The possible return of the price to the height of the neck line should take place with definitely lower turnover.

The confirmation of the formation is a subsequent price decline confirmed by a large volume of trade. The minimum extent of the decline is calculated by measuring the height of the formation from the neck line down.

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

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

Note 2: It is possible to "mutations" form the head and shoulders, e.g. two heads.

If you have shares:

sell if the price drops at least 5% below the neckline

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