Over the past couple of years, many references to the so-called “inverse” head and shoulders pattern have appeared:
- Top Strategist Spots Bullish S&P Chart Signal
- FTSE Forms Inverse Head-and-shoulders Pattern
- May 11th 2011 Market Recap with Silver, WatchList
- About that Inverse Head & Shoulders
The pattern (from TraderMike.net) is basically a head and shoulders “bottom” in an uptrend.
I must have missed the memo because this pattern does not appear in Technical Analysis of Stock Trends:
Note the examples in Edwards & Magee always find the pattern preceded by a downtrend:
Anyway, this sort of thing happens all the time with candlestick patterns. It’s not just the pattern. The preceding price action actually sets the stage for the pattern.
But who am I to argue with this new piece of received wisdom? It’s not as if we will trade the pattern. If anything, we could trade it if it turns out to be a trap. For example, many will be expecting this pattern to resolve up. They will be long in anticipation of an upside move. If it doesn’t materialize, they will be trapped.