What is Inverse head and shoulder pattern and how to do intraday with it?
An inverse head and shoulder pattern is also called as head and shoulder bottom. It is the opposite of head and shoulder. In technical analysis, the pattern predicts the reversal of the Downward trend to Upward trend which is bearish to bullish. It is a very strong bullish pattern, which one can notice on the chart patterns very frequently. Present in all time frames, but it is effective in the downward trend
It is formed with three inverted peaks with first and the third to be of equal height called shoulder and the middle peak is the highest called Head.
How to Identify the pattern?
Points to remember while identifying the Head and shoulder pattern.
a) the pattern forms during a downward trend when the price rises to the lowest
b) Look for the formation of three inverted peaks with first and last to be equally close in height and the middle peak to be the highest
c) Price action should break the neckline (Resistance Level)
What will be the Inverse head and shoulder pattern entry point?
Breakout point
You can invest your money at the Closing of the candle, which breaks the Neckline (resistance level). For visual understanding look at the image above.
Where to put stoploss in the pattern?
In Inverse head and shoulder you can put your stoploss near the opening of the breakout candle, which forms on the neckline.
How to put a target using the pattern?
The price gap which forms between the first inverted Peak and the neckline, will be your target from neckline upwards.
Re-Test Point
You will observe that few of the times price takes a reverse turn after breaking the neckline. This will make you run for your money, but this is also a good opportunity to do trading. The price comes back to the neckline to do a re-test and bounce back from the Neckline (which is now the Support level for the price). You can enter into a buy position near the closing of the re-test candle.
Inverse Head and shoulder pattern stoploss and target placement after price Re-testing.
The stoploss will be the same as breakout point, which is near the opening of the breakout candle. And You can put your target with price gap between the neckline and the first peak (depends on you how much risk you can take, You can always 2x the target)