Inverted Head and Shoulders Patterns

Inverted Head and Shoulders on AUDCAD

Inverted Head and Shoulders on AUDCAD

Inverted Head and Shoulders on AUDCAD. This was my first trade on Daily timeframe, after I decided to switch from intraday trading to swing trading. It was the first swing trade on my verified trading results account.

The premise

When you look at the Daily chart it’s easy to spot an inverted SHS pattern (inverted head and shoulders). It is also called a bottom head and shoulders pattern or a head and shoulders bottom pattern. I like to call it simple SHS bottom pattern.

Inverted Head and Shoulders on AUDCAD

Is it or is it not an Inverted Head and Shoulders on AUDCAD?

As I said, at the first look it can be easy to spot an inverted head and shoulders pattern. But, it is not the classical one. It’s a kind of variant where the right shoulder it’s a bit extended. That should be the first sign that this pattern may hide something different then it shows. Usually the inverted head and shoulders pattern have a smaller right shoulder than its left shoulder. Also, considering the wideness of this particular one it can be considered also a variant of a wedge pattern. It could also be an ascending triangle, but considering that the left shoulder its higher than the head it does not qualify for this kind of pattern.

The importance of risk management

Before I show you the outcome of this trade I need to mention this. The most important thing in trading, or at least one of the most important things is risk management. You always need to be sure that you use on each trade a comfortable risk. Usually I use 0.3% to 1% per each trade. In this way you won’t miss a trade because you’re not sure about it. There is only one way to find out if you’re right and wrong and that is to place your pending order and wait.

The moment of truth with Inverted Head and Shoulders

As you can see in the next chart, there was a valid breakout on a daily basis. The price closed above the neckline. The next day after the breakout, the price retested the previous day high and there were no more buyers. What a bull trap! You can see the outcome of this trade easily. There was a lot of sellers who waited for the bulls to step in, and then, in a matter of six days the price reached the support offered by the head.

The outcome of the inverted head and shoulders on AUDCAD

The conclusion

So, there are two main conclusions here. The first one is that a trader should always be aware that a trade can go against him. And he or she should always be prepared for it. The second conclusion and in the same time the reason why I’m looking for right-angled patterns is because of the morphing tendency. As we can see, even the right-angled patterns tend to morph in something else, or simply fail. But, the odds are way better in right-angled patterns, than in diagonal patterns. So, this was my beginning with swing trading after Nine Months of EURUSD Intraday Trading.

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