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Inverted Head and Shoulders Patterns

Inverted Head and Shoulders on Nasdaq

Inverted Head and Shoulders on Nasdaq

Inverted Head and Shoulders on Nasdaq is a classical chart pattern which is located at the end of a 32% drop. Therefore, it has bullish implications.

The premise

Let’s take a look at the daily chart of Nasdaq. We’ll see that there was an uptrend at the end of which we have a 32% drop. So, after this drop, the price morphed into an inverted head and shoulders pattern. As you can see, this is a very wide pattern, but that doesn’t change the facts.

inverted-head-and-shoulders-on-nasdaq-detail
Inverted head and shoulders on Nasdaq daily chart detail

How did I trade the inverted head and shoulders pattern from Nasdaq?

I simply placed a buy stop order slightly above the resistance of the pattern. And I considered resistance the April 17th 2020 daily candle high. Consequently, my order is open on April 29th 2020.

The outcome

The breakout was a pretty nice one. A strong wide candle into the upside. Therefore, everything was just fine until the next day when the price started to retest the neckline of the pattern. I need to mention that a retest is something usual and it’s not a bad thing when it happens. But, I prefer to see a clean breakout with a much higher move before the retest or a breakout with no retest at all. This is what I’m looking for. And you can see a nice example here: Double Bottom Continuation Pattern EURHUF. So, after the retest day, the third day opened lower, with a small gap into the downside. And, from my experience this is not a good sign. Therefore, I decided to close this trade manually for a loss of 0.3%.

the-outcome-of-the-inverted-head-and-shoulders-on-nasdaq
The outcome of the inverted head and shoulders on Nasdaq daily chart

The importance of the active trade management

This decision saved a small part of my entire risk because I opened this trade with a o.4% risk. I know that you might think that it’s not a big deal 0,1% saved. But this was an exception. Cutting the loses earlier saved my account a lot of times and reduced my risk in the half over time. You can take a look in this article: How to Analyse Your Trading Results? and see that my average loss is somewhere about 0.4% even if I usually use 0.5 to 0.8% initial risk.

The conclusion of the inverted head and shoulders on Nasdaq

As you can see into the previous chart, after I closed my trade, the price went up again. And I’m totally ok with that. And that’s because I know very well what kind of breakout I’m looking for. An important thing to mention here is that I decided to lower my initial risk from 0.5% to 0.8% because this is not that kind of pattern from which, one can expect a violent breakout. And I was right about it. What made me think like this? Was the height of the pattern. You can compare this pattern from Nasdaq with this one from here Inverted Head and Shoulders on #AMZN. And you’ll see the differences even in volumes. You can also take another look at the EURHUF article from the above. You’ll see the same accumulation from #AMZN. Accumulation which is not present in Nasdaq pattern.

One more detail

Now, at the end of this article I want to show you something really fascinating. So, please, take a look at the next chart. And you’ll see how our inverted head and shoulders pattern just morphed into a rising wedge into an uptrend. What does this mean? Take a look inside this article and you’ll see: Rising Wedge Pattern on #PG. And the last thing for now is that I would really appreciate if you could show your support for my work and follow Capital Patterns on Twitter and Facebook. Or even subscribe to my newsletter. It would be really motivational and it would mean a lot to me. Thank you!

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Inverted head and shoulders on Nasdaq morphed into a rising wedge – daily chart

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