The Inverse Head and Shoulders pattern is a popular reversal pattern among traders. It appears at the end of a downtrend and is comprised of 3 troughs, with the 3rd one being higher than the 2nd. These peaks are referred to as the left shoulder, head, and right shoulder.
What's important to note is that the right shoulder signals a shift in market structure. To increase the probability of success, traders should look for key features such as the right shoulder retracing to the 618 Fib level, RSI bullish divergence from the left shoulder to the head, and increased volume on the breakout of the right shoulder.
Traders can enter the market aggressively at the peak of the right shoulder, which could present as an SFP trade, or more conservatively at a BCR of the neckline. The stop placement for these two entries is either above the head for an aggressive entry or above the right shoulder for a conservative entry.
