The inverted head and shoulders pattern is a reversal pattern that indicates a change in the trend from bearish to bullish. This pattern usually forms after a downward movement in the market and is considered a positive signal indicating the beginning of a price increase.
Model components:
1. First shoulder:
• A decrease in price followed by a rebound upwards (first bottom).
2. Head:
• A new low in price is lower than the first low (deeper low), then the price rises again.
3. The second shoulder:
• A third price drop, but higher than the bottom of the head (a higher bottom than the head), followed by another rise.
4. Neckline:
• The resistance line that connects the two bounce tops between the first shoulder and the head, and is usually horizontal or slightly sloping.
How to trade using the pattern:
1. Login:
• Entry is made when the price breaks the neckline in an upward direction with an increase in trading volume.
2. Stop Loss:
• Placed below the bottom of the head or below the level of the second shoulder.
3. Objective:
• The price target is calculated by measuring the distance between the bottom of the head and the neckline, then adding it to the breakout point.
Technical reference:
• This pattern indicates that the market was in a downtrend, then buyers started to take control of the trend, causing the market to reverse to an uptrend.
Note:
• The breakout must be confirmed with strong trading volume to ensure the validity of the pattern.
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