What it looks like
A low (left shoulder), a bounce, a deeper low (the head), a second bounce, then a higher low at about the left shoulder's level (right shoulder). Draw the neckline through the two bounce highs; it can be flat or slightly sloped. The pattern completes when a candle closes above that line. The height is measured from the head straight up to the neckline.
What it means
Sellers made three attempts. The middle one went deepest, but the last could not match it, which shows their push fading. The close above the neckline is the signal the shape exists for: buyers have taken out the highs that capped the bounces, and the fall has lost its structure.
How to trade it
- 1
Mark the left shoulder, head and right shoulder, and draw the neckline through the two bounce highs.
- 2
Confirmation: a candle closes above the neckline.
- 3
Entry: buy that close, or a retest of the neckline that holds.
- 4
Stop: below the right shoulder. Example on gold: head at 3,960, shoulders near 3,985, neckline at 4,020. Buy the close at 4,022, stop at 3,980, a 42 point risk.
- 5
Target: head to neckline (60 points) above the neckline, about 4,080.
A close back below the neckline.
Where it works best
At the end of a clear downtrend on 1 hour to daily charts, where the head forms at a major support level.
WickSpeak finds inverse head and shoulders patterns automatically and names them on the candles that made them. The note explains what it is, how to trade it and that a close back below the neckline proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Buying the right shoulder before the neckline breaks.
- Forcing the shape onto any three lows, even when the shoulders are very uneven.
- Measuring the target from the right shoulder instead of the head.
Related patterns
Questions traders ask
Is inverse head and shoulders bullish?
Yes. Once price closes above the neckline it is a bullish reversal, showing a downtrend losing its grip.
How do you calculate the target?
Measure from the lowest point of the head up to the neckline, then add that distance to the breakout point on the neckline.
Where should the stop go?
Below the right shoulder is the usual place. A wider, safer option is below the head, but that makes the risk much larger.
What if the neckline slopes?
A sloped neckline is fine. Draw it through the two bounce highs and use the point where price crosses it as the break.