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Chart patterns

The inverse head and shoulders:a possible bottom, drawn in three lows.

An inverse head and shoulders is a chart pattern of three troughs, with the middle one - the head - lower than the two either side - the shoulders. A neckline is drawn across the two rally highs between them. It is read as a possible end to a downtrend, confirmed only when price closes above the neckline.

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The parts of the pattern

It is the mirror image of the head and shoulders top. After a decline, price makes a low (left shoulder), rallies, makes a lower low (head), rallies again, then makes a higher low (right shoulder) roughly level with the left. The two rally highs define the neckline, which can be horizontal or sloped.

Inverse head and shoulders, part by part
PartWhat it isWhat traders look for
Left shoulderA low in an existing declineA downtrend that precedes it
HeadA lower lowThe lowest point of the pattern
Right shoulderA higher low than the headRoughly level with the left shoulder
NecklineLine across the two rally highsThe level a close must break

Confirmation, the retest and the measured move

Until price closes above the neckline, the shape is only a possible pattern; many right shoulders fail and price makes new lows instead. After a break, price often returns to the neckline before moving on - a throwback - which some traders use as the entry.

The common target convention measures from the head to the neckline and projects that distance up from the break. It is a rule of thumb for planning, not a forecast; price frequently stops short of it or overshoots.

Inverse vs regular head and shoulders

The regular pattern forms at a high - three peaks with the highest in the middle - and is read as a possible top, confirmed by a close below its neckline. The inverse forms at a low. The logic is the same in both: the failure to make a new extreme on the right shoulder is taken as the trend losing force, much as divergence is.

Step by step

How to identify it

Work left to right and do not name the pattern until the right shoulder and the neckline are both there.

  1. Confirm there was a decline before the pattern; without one, it is not a reversal pattern.
  2. Mark the three troughs and check the middle one is the lowest.
  3. Draw the neckline across the two intervening rally highs.
  4. Check the shoulders are broadly similar in depth and duration; badly lopsided patterns are harder to trust.
  5. Wait for a close above the neckline before treating the pattern as confirmed.

Worked example

The concept,walked through

An inverse head and shoulders, described

An illustrative sequence in words, with round numbers standing in for price. It is not taken from any real instrument or date.

  1. 1. Left shoulderAfter falling from 120, price bottoms at 100 and rallies to 108.
  2. 2. HeadIt falls again to 95, a lower low, and rallies to 108.5.
  3. 3. Right shoulderIt dips to 101, a higher low than the head, and rallies.
  4. 4. BreakA candle closes at 110, above the neckline near 108.5. The head-to-neckline distance is about 13.5.

The measured-move convention would put a planning target near 122, but that is a convention. A trader using the pattern would also know where it fails - a close back below the right shoulder - before entering.

Common mistakes

Where tradersgo wrong

Entering on the right shoulder

Before the neckline breaks, the pattern is unconfirmed and often fails.

Finding the pattern everywhere

Any three troughs can be forced into the shape. The prior downtrend and a clean neckline matter.

Treating the measured move as a target price

It is a planning guide; price often stops short or runs past it.

Limitations

What it cannottell you

No chart concept predicts price. These are the limits worth keeping in view.

  • The pattern is identified with judgement, and published success rates are for particular markets and periods that may not match yours.
  • A confirmed break can still reverse; the pattern describes a shape, not what comes next.

In an evaluation

Using it on asimulated account

On a $100,000 simulated account the daily loss limit is $3,000 on Instant or $5,000 on 1 Step and 2 Step. Pattern stops are often wide, so size from the stop distance first - risking something like $500 a trade - rather than from how clean the pattern looks.

A stop below the right shoulder can be far from a neckline entry, which usually means a smaller size than a trader expects.

Trading rule

What is the daily loss limit?

The ceiling on a day's losses - 3% on Instant and 5% on 1 Step and 2 Step.

Trading rule

What is maximum drawdown?

The overall floor beneath the account.

Trading rule

Is there a maximum lot size?

How size is bounded on a simulated account.

Questions

Asked aboutthis concept

It is read as a possible bullish reversal after a downtrend, once price closes above the neckline. Before that, it is only a possible pattern.

The usual convention projects the distance from the head to the neckline upward from the breakout point. It is a planning guide, not a forecast.

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Sources

What this pagerelied on

  1. Head and shoulders (chart pattern) - Wikipedia. Retrieved 23 September 2026. Construction of the pattern and its inverse, the neckline, and the measured-move convention.
  2. Head-and-shoulders bottoms - Thomas Bulkowski, ThePatternSite. Retrieved 22 September 2026. Pattern construction and the observation that throwbacks to the neckline are common; statistics there are for US stocks and are not repeated here.

Educational content only, not investment advice or a recommendation to trade. Chart concepts describe what price has done; none of them predicts what it will do, and trading any strategy can lose money. Get Funded Now accounts are simulated and trade virtual funds. Last reviewed 22 September 2026.

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