Head and Shoulders

1. A peak forms and then falls.
2. Then, the price rises again to form a peak larger than the former peak and again declines
3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head. The common line of support for all three peaks, which does not have to be a horizontal line, is known as the Neckline. The final downward penetration of the neckline confirms the start of a new downward trend.

Inverse Head and Shoulders

Inverse head and shoulders is nothing but the normal head and shoulders flipped upside down. With this formation, we would place a long entry order above the neckline. Our target is calculated just like the head and shoulders pattern. Measure the distance between the head and the neckline, and that is approximately the distance that the price will move after it breaks the neckline.

You will also notice that the volume of trades rise one the price breaks above the neckline/resistance.

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