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reverseheadandshoulderchart
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Reverse head and shoulder chart

Reverse Head And Shoulder Chart

Reverse Head And Shoulder Pattern is just opposite of Head and Shoulder Pattern. It is also a very reliable pattern and that is reason of its popularity. It is a reversal pattern and is formed after a downtrend. Reverse Head and Shoulder pattern consist of the following:
1.Left Shoulder: In continuation of the downtrend the price goes down further to forms a new low or first peak known as left shoulder and then make a high.
2.Head: Continuing the left shoulder high, again the price goes down to a new low, lower than the left shoulder forming a middle peak called as head of the pattern and goes up to the previous high.
3.Right Shoulder: It is formed when the price goes down again from the high of the head but not as low as the Head and comes up again forming third peak or right shoulder.
4.Neckline: It is the line drawn through the top of the the Left Shoulder, Head and the Right Shoulder and serves as an important support for this pattern.

Breakout: The pattern is only considered reliable and complete when the price goes up and closes above the neckline and there is often increase in Volume.
Shape: Theoretically Head and Shoulder pattern should be symmetrical. It means that the left and right shoulders should form peak about the same price level and are equally distanced from the Head. But practically you rarely seen such symmetrical Head and Shoulder patterns in real time. However sometimes the left shoulder is higher then the right shoulder or vice verse. But the head always have the highest peak. It is not necessary also that the peaks formed in this pattern to be sharp, it may be pointed to round shape. And therefore it is not necessary that neckline should be horizontal, it can be sloping upwards or downwards.
Volume: With the formation of Reverse Head and Shoulder there is continuous decrease in the Volume.

That means volume will be higher in the left shoulder and eventually it decreases with the formation of head and right shoulder.
Breakout Range: This is the vertical distance from the tip of the head till the neckline. It is usually used to set the rough potential price target however other technical indicators must also be considered here as well.


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