Inverse Head and Shoulders Pattern: How to Spot It, Measure the Target and Trade the Breakout

What an inverse head and shoulders is

Picture the classic head and shoulders top turned upside down. Sellers push price to a new low (left shoulder), buyers bounce it, sellers push to an even lower low (head), buyers bounce it again to about the same level, and then the next sell off fails to reach the head (right shoulder). That failure is the message: sellers can no longer make new lows. When buyers then push through the neckline, the downtrend is over.

You will also see it called a head and shoulders bottom, an inverted head and shoulders or a reverse head and shoulders. They are all the same pattern. StockCharts ChartSchool describes it as a major reversal pattern that forms after a downtrend, with three successive troughs and the middle one the deepest, and Investopedia files it under the same definition.

Is the inverse head and shoulders bullish?

Yes. The inverse head and shoulders is bullish because it marks the end of a decline. The classic head and shoulders (three peaks with the middle one highest) is bearish because it marks the end of a rally. A simple way to remember it: the head points in the direction of the old trend, and the breakout goes the other way.

Five rules for a valid inverse head and shoulders

1. A real downtrend before it. A reversal pattern needs something to reverse. Three lows inside a sideways range are just a range.
2. The head is clearly the lowest point. Both shoulders must hold above the head low. If the right shoulder undercuts the head, the pattern is gone.
3. Shoulders that roughly match. Thomas Bulkowski's head and shoulders bottom guidelines ask for shoulders that bottom near the same price, sit at a similar distance from the head and look alike. A lopsided pattern is less reliable.
4. Volume that grows on the way up. StockCharts calls volume crucial for bottoms: the rally off the right shoulder and the neckline break should come on expanding volume, while the pullback into the right shoulder should be quiet.
5. A close above the neckline. Until a candle closes above the neckline, you are looking at a possible pattern, not a confirmed one. Wicks through the line do not count.

The neckline can be flat or sloped. A rising neckline means the second bounce got higher than the first, which StockCharts reads as more bullish. When the neckline slopes, draw it through both bounce highs and use the point where price crosses it as the breakout level.

How to measure the inverse head and shoulders target

The measured move rule has two steps. First, measure the height: the distance from the head low straight up to the neckline. Second, add that height to the neckline at the breakout point.

This is the question that shows up in trading exams: in an inverse head and shoulders, the neckline is at 100, the shoulders at 90 and the head at 75. Where is the price target? The height is 100 minus 75, which is 25. The target is 100 plus 25, which is 125. The shoulders at 90 do not enter the math; they only confirm the shape.

Bulkowski adds a more conservative version. His study found that only 71% of head and shoulders bottoms in bull markets reached the full measured target, so he multiplies the height by 0.71 before adding it. In the example that is 25 × 0.71 = 17.75, for a first target of 117.75. Many traders take partial profit at the conservative level and leave the rest for the full 125.

How to trade it: entry, stop and position size

A plan for the inverse head and shoulders uses the same three numbers as any breakout trade: entry, stop and target. Using the example above with a right shoulder low at 88:

• Entry: on the close of the breakout candle, say 101.
• Stop: just under the right shoulder low, at 87.50. If price falls back below the right shoulder, the pattern has failed.
• Target: 117.75 (conservative) or 125 (full measured move).

The risk is 101 minus 87.50, which is 13.50 per share. The reward is 16.75 to the conservative target (about 1:1.24) and 24 to the full target (about 1:1.78). If the ratio to your realistic target is too small, skip the trade; the risk reward ratio guide shows how to check it before you enter.

Then size the position from the stop, not from a gut feeling. With a $10,000 account risking 1%, you can lose $100. Divide by the 13.50 stop distance and you get 7.4, so you buy 7 shares and risk $94.50. The free position size calculator does this for stocks, and the lots calculator does it for forex, gold and indices.

A tighter alternative is to wait for a retest. Bulkowski measured a throwback (price returning to the neckline after the breakout) in 65% of cases, so patient traders often buy the pullback to the old neckline with a stop just under it. The catch, in his data, is that patterns with a throwback performed worse afterward, and some never come back at all, so you will miss part of the best moves.

How reliable is the inverse head and shoulders?

The largest public dataset comes from Bulkowski, author of the Encyclopedia of Chart Patterns. On his head and shoulders bottom page, based on 3,197 patterns in bull markets, he reports:

Those are statistics on stocks, measured on patterns that met his identification rules, so treat them as a description of the past rather than a promise. His notes also flag what hurt results: a higher left shoulder valley than the right one, throwbacks, and breakouts in a tall single bar after a steep drop. A short drop of up to three months into the pattern gave the best performance after the breakout.

For our own record of real breakouts, scored as hits and fails, see the breakout stocks vault.

Common inverse head and shoulders mistakes

• Buying the right shoulder. Guessing the bottom before the neckline breaks means you are trading a pattern that does not exist yet.
• Ignoring the trend above. A breakout straight into a falling 200 day average or old resistance has little room to run. Bulkowski lists overhead resistance as one of his trading traps.
• Measuring from the wrong point. The height runs from the head low to the neckline directly above it, not from a shoulder.
• Forcing the shape. Five or six lows with no clear head are a messy base, not this pattern.
• No volume check. On stocks, a neckline break on thin volume is the one most likely to fail.

Want more patterns with the same logic? The bull flag vs bull pennant guide covers continuation breakouts, and the most reliable candlestick patterns help you judge the breakout candle itself.