As its name suggests, the Inverse Head and Shoulders formation is the opposite of the Head and Shoulders. It appears as a series of three bottoms with the middle one being the lowest (still called the "head", even though its direction is the opposite). While the first and the third bottoms (the "shoulders") need to be higher than the head, it is not required that they are of the same height. Similarly, the line that connects pattern tops, called "the neckline", does not need to be strictly horizontal, necklines with a slope downward add to the pattern performance.
When a Head and Shoulders formation is seen in a downtrend, it signifies a major reversal. Just like in the straight Head and Shoulders pattern, the strength of this reversal, measured as the rise amount after breakout, is proportional to the decline before pattern emergence: stronger preceding trends are prone to more dramatic reversals. Volume trends are exactly the same as in Head and Shoulders: it is usually the highest at the left and trending downward; however, this describes better conditions (as opposed to Head and Shoulders where volume uptrends are usually preferred).
While sharing the Head and Shoulders geometry principles, the inverse pattern is statistically less reliable. On the other hand, its tendency toward throwbacks is significantly less expressed than the tendency toward pullbacks in plain Head and Shoulders.
For educational purposes only. Not a recommendation of a specific security or investment strategy.
Technical analysis is not recommended as a sole means of investment research.
Past performance of a security or strategy does not guarantee future results or success.