INSUBCONTINENT EXCLUSIVE:
Usually, the intervening bottoms also occur at the same level
OCCURS: The first peak (left shoulder) and the higher middle peak (head) formation is normal in any bull market because it is usually
characterised by higher peaks and bottoms
The first indication of a head and shoulder pattern is when the correction from the middle peak (head) comes all the way back to the
The formation of two bottoms around the same price levels is a rare occurrence in a bull market and it shows that the bulls are becoming
The neck line is also formed then
The failure to reach the previous peak (head) is another signal that the bears are becoming stronger
The critical moment is when the price comes back to the neck line, i.e
the price level which has received support in the past two attempts
The head and shoulders pattern is complete only when there is a neck line breakdown or the price falls below the neck line
Since any break below the neck line results in a continued price fall, it is considered bearish.
INVERSE HEAD - SHOULDER: This is the mirror
image of the head and shoulder pattern and is a bullish signal
Here again, the pattern is confirmed when the price breaks above the neck line.
TRADING RULES: As with other patterns, the rule here is
As a precaution, stop loss is placed just above the neck line
And the rule for inverse head and shoulder is just opposite: buy / go long when the neck line is broken with stop loss just below the neck
