Inverse Head and Shoulders

A bullish reversal pattern — the upside-down version of the head and shoulders — that forms after a downtrend and signals a potential shift to an uptrend.

The inverse (or reverse) head and shoulders is formed in a downtrend with three troughs: a lower central trough (the head) between two higher troughs (the shoulders). The neckline connects the two reaction highs between the troughs. The pattern is completed when price breaks above the neckline — signaling that buyers have overcome sellers and a new uptrend may be beginning.

Like its bearish counterpart, the inverse pattern is confirmed on a neckline breakout, ideally accompanied by above-average volume. The price target is measured by taking the distance from the neckline to the bottom of the head and projecting it upward from the breakout point. The right shoulder's higher low relative to the head indicates that selling pressure is diminishing.

Inverse head and shoulders patterns are common at major market bottoms. They often form over extended periods as the market stabilizes after a prolonged decline — absorbing remaining selling pressure and building a base before the eventual breakout. Many significant bull markets have begun with a textbook inverse head and shoulders formation, making the pattern particularly important for investors trying to identify major trend reversals.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.