The Inverse Head and Shoulders Pattern is the opposite of the head and shoulders pattern. It is a trend reversal pattern consisting of three peaks drawn in the opposite direction.

The forex market consists of several types of trading strategies and pattern formations. The inverse head and shoulders pattern is one of the most popular strategies on the market. And here is everything you need to know about it:

Inverse head and shoulders reversal pattern

 

What is the Inverse Head and Shoulders Pattern

The Inverse Head and Shoulders Pattern is the opposite of the head and shoulders pattern. It is a trend reversal pattern consisting of three peaks drawn in the opposite direction. The two peaks on the exterior are almost the same height as the peak in the center, which is the tallest. The pattern depicts a change in trend from bearish to bullish and appears during a decline.

It is helpful to understand how inverse head-and-shoulders patterns are formed to recognize when a trend reversal has occurred. The left shoulder formation occurs when a currency pair's sellers lose enthusiasm for their position momentarily. The head is formed when investor enthusiasm wanes and then surges to the point that it is either at or very close to the currency pair's all-time high.

The pattern indicates that the price is falling quickly, but it begins to rise again after reaching its lowest point. After that, the price drops again, reaching a lower level than the last one, before beginning its ascent. The price continues to rise until it reaches a level equivalent to the level reached during the initial high, which begins to decrease.

 

How to Use the Inverse Head and Shoulders Pattern

It is important to wait until the Inverse Head and Shoulders Pattern has finished its development before continuing. This is due to the fact that a pattern that is just half-designed could not be finished in time. When the pattern breaches the neckline, an entry is typically regarded for consideration. Immediately following the creation of the right shoulder, a long trade is executed. It is possible to position the stops below the right shoulder.

As a second option, the head itself might serve as the stop. There are certain restrictions associated with the Inverse Head and Shoulders Pattern. The bearish trend is not presented in a way evident from this. The price goes up whenever there is a peak that forms. But after that, the bears drive the price back down, creating an intermediate high just before they regain control of the market.

The bears exert one more attempt to drive the price lower, which results in the formation of a new high point. However, at this point, the bulls seize control and finish off the reversal. Some traders find themselves befuddled by these highs and lows, and sometimes there is a substantial price increase on one of the shoulders. In addition to this, the formation of the Inverse Head and Shoulders Pattern might take a considerable amount of time.

 

Final Verdict

There is no doubt that the inverse head and shoulders pattern has a high accuracy level among the industry's top traders. However, you must always practice on a demo account first to prevent making any mistakes that could make you lose your account.