Big Profits from Inverted Head and Shoulders Break

Big Profits from Inverted Head & Shoulders Break

One of the most rare, and profitable, chart patterns is the Head and Shoulders pattern. But you know what is more common and even more profitable? The Inverted Head and Shoulders!

Head and Shoulders patterns occur when a support is established with three peaks above the level. The outside two peaks are similar in size, while the middle peak is higher. This creates a visual of a head (the middle peak) with shoulders (the outside peaks). The level is referred to as the neckline, and most traders look to trade the break of the neckline.

The Typical Head and Shoulders Pattern

Explosive Breakouts Ahead

Inverted Head and Shoulders Pattern Break on XLF

Now, if we take that pattern and turn it upside down, we have an Inverted Head and Shoulders Pattern. This type of pattern can lead to explosive breakouts once the neckline is broken. This pattern has been prevalent in the current market.

OmniTrader provides Chart Pattern Recognition Technology, and generated these great trades recently. This chart for XLF shows a slanted neckline, but otherwise a well formed Inverted Head and Shoulders Pattern. The break of the neckline is occurring now, so there should still be plenty of upside to this trade.

Inverted Head and Shoulders Breakout on MMM

Another excellent trading opportunity OmniTrader found is MMM. Currently MMM is breaking through the neckline of an inverted Head and Shoulders Pattern. The shoulders are a bit lopsided, but the stock is finding strength after the neckline break.

A Perfect Setup

Strong Breakout on Inverted Head and Shoulders Pattern

And finally, here’s a picture perfect Inverted Head and Shoulders Pattern on PATK. Not only is pattern flawlessly formed, but the energy in the breakout shows why these patterns are well-regarded by traders.

Head and Shoulders and Inverted Head and Shoulders patterns can occur in any timeframe, but more common on daily charts. If you aren't currently using OmniTrader’s Chart Pattern Recognition, take the time and look at many charts and see if you can find this setup. If you do, look to play the breakout for a strong move and impressive gains.

Jeff Drake
Director of Trading Technology
Nirvana Systems, Inc.