Happiest Minds : Inverse H&S Breakout

17 thg 8, 2022

Inverse Head and Shoulders

This pattern forms after an extensive downside rally. It consists of a left shoulder, a head, and a right shoulder. The left shoulder is formed after a big bear rally in which the volumes are quite large.

At the end of the left shoulder, a minor correction takes place on the upside which happens on the low volumes comparatively the starting of the left shoulder. After this again a down move can be seen on large volumes forming a head having its bottom is below the left shoulder following an upmove correction on lower volumes & completing the head.

The completion of the head must be above the top of the left shoulder. If the prices rise above the top of the left shoulder then too this pattern remains intact. In the end, the right shoulder is formed usually on smaller volumes comparatively the previous two rallies.


Now if you connect the tops of the left shoulder, head & the right shoulder there will be a formation of the ‘Neckline‘. This line will act as a decision line. If the prices break this neckline & give closing above the line, this will be the confirmation of the breakout of the Inverse head and shoulders pattern.

However, it has been noticed that after breaking of the neckline the prices again attracted towards this neckline. We say this phenomenon as a retest of the neckline which will add some more confidence while trading this pattern.

After retesting if the prices again start rising, this will be the final confirmation of the up move as shown above.

The bookish target of this pattern is taken as the vertical price range from the bottom of the head to the neckline & the bookish Stop loss should be the bottom of the right shoulder. However this stop loss can be big, so it is advised to keep a stop loss of 4-5% of the price range below the neckline.

TRADING STRATEGY:

Buy on cmp add on dips & look for the target of 1300 and above in the coming weeks. Maintain SL of 935