The Inverse Head and Shoulders is the bullish mirror of the classic Head and Shoulders pattern, forming at the end of a downtrend. Three troughs make up the pattern: two equal-depth shoulders on the outside and a deeper head in the center. The neckline connects the two peaks between the troughs. A confirmed close above the neckline signals the bullish reversal.

How to Identify

• Forms after a sustained downtrend lasting several weeks or months
• Left shoulder: price declines to a low, bounces back to the neckline
• Head: price declines to a deeper low — the lowest point of the pattern
• Right shoulder: price declines again to roughly the left shoulder level, then bounces
• Volume typically increases on the head trough, then further increases on the neckline breakout
• Neckline: drawn across the two peaks between the troughs
• Breakout: confirmed by a close above the neckline on rising volume
• Price target: measure from head to neckline and project that distance above the neckline break

Market Psychology

Sellers exhaust themselves at the head — the deepest low — but buyers step in and push price back to the neckline. On the right shoulder, sellers try again but can only reach a shallower low, revealing diminishing bearish conviction. When price breaks above the neckline, short sellers are forced to cover, adding fuel to the rally.

Rising volume on the breakout is critical — it confirms genuine demand rather than a low-volume false breakout. A neckline retest on declining volume after the initial break is a high-confidence call entry.