An inverse head and shoulders is a type of chart pattern used in technical analysis to indicate a potential reversal of a downtrend. Like the standard head and shoulders pattern, it typically appears as the shape of a “head,” flanked by two “shoulders” and a “neckline.” Depending on the market, either a “head” of increased prices or a “shoulder” of decreased prices will appear first in the pattern.

The first “shoulder” of an inverse head and shoulder indicates the bottom of a downtrend, with the “head” or peak marking the point at which the price of an asset has reversed from downward momentum to what appears to be a reversal of direction. The “neckline” is then formed after the “head” and “shoulders,” which marks the lower boundary of an uptrend. In a perfect inverse head and shoulders pattern, this would be a gently sloping trend line at an upward angle. A break in this line occurs when the price of the asset rises above the resistance of the neckline.

In summary, an inverse head and shoulders pattern is a bullish reversal trend, marked by a peak and two lower points on either side, known as the shoulders, followed by an upward-sloping neckline. When the price of an asset rises above the resistance of the neckline, it signals a bullish trend and an appropriate time for investors to enter into a long position.