Inverted Head & Shoulders Pattern

The Head and Shoulders Pattern can sometimes be inverted. The inverted head and shoulders is typically seen in downtrends. What's noteworthy about the inverted head and shoulders is the volume aspect. The Following is a Typical Trend of an Inverted Head and Shoulders Pattern

  1. The inverted left shoulder should be accompanied by an increase in volume.
  2. The inverted head should be made on lighter volume.
  3. The rally from the head however, should show greater volume than the rally from the left shoulder.
  4. Ultimately, the inverted right shoulder should register the lightest volume of all.
  5. When the stock then rallies through the neckline, a big increase in volume should be seen.
Volume has a great importance in the Head and Shoulders Pattern. Volume generally follows the price higher on the left shoulder. However, the head is formed on diminished volume indicating the buyers aren't as aggressive as they once were. And on the last rallying attempt-the right shoulder-volume is even lighter than on the head, signaling that the buyers may have exhausted themselves.

New selling comes in and previous buyers get out. The pattern is complete when the market breaks the neckline. (Volume should increase on the breakout.)