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Inverse Head and Shoulders Warnings!
Of course, this Head and Shoulders series wouldn’t be complete without the bullish warnings, right? Right!
So let’s jump right in then!
Since we’re talking about bullish warnings, this means that our scenario is based in a downtrend, and our reversal pattern is now called Inverse Head and Shoulders.
Now as you already know by now, the first thing we need for a reversal pattern to exist is an established trend.
Similarly to the bearish Head and Shoulders, there are also several warnings that may signal the imminent formation of the Inverse Head and Shoulders, such as:
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The dip to the lowest bottom, i.e. the head, is on a lighter volume compared to the volume of the left shoulder. This may be an indication that the downtrend is running out of steam!
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The correction starts from the head, moves up to the neckline, and rallies past the left shoulder. In this case, the volume is heavier than usual, showing the buyers’ intentions. Furthermore, the correction breaks above the uptrend line.
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Subsequently, the next dip doesn’t drop below the previous bottom (i.e. head), and the right shoulder is shaped instead.
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The rally from the right shoulder, clearly slashes through the neckline on higher volume. This indicates that the downtrend is over and a new trend has started in the opposite direction!
Voila! Now you know the bullish warnings of an Inverse Head and Shoulders!
