Inverse head and shoulders are about a chart pattern that is used during a technical analysis to determine the reverse effects of the present downtrend. This pattern can be identified whenever the price action of a security meets certain characteristics like the following:
• If the price will fall trough and then it will rise again
• If the price will fall below the previous trough and then it will rise again.
• If the price will fall again, but not as drastic as the second trough.
As soon as the last trough happened, the price will go up again to the resistance that is visible near the upper of the earlier troughs. The investors can now get in a long position whenever the price goes up beyond the resistance of the neckline. The 1st & the 3rd trough may be known as the shoulders while the 2nd peak is the head.
When you check on charts online, you can see that a move over the resistance is also called the neckline. It is typically used to signal a piercing move going up. A lot of traders will take a closer look at the big kick in the volume to determine the authenticity of the breakout. This patter is usually contradictory to the famous head & shoulder pattern, but it is used to know the shifts and twists in a downtrend more than the uptrend.