Reverse Head and Shoulders
Here are two other bullish reversal chart patterns.
The triple bottom is an extension of the double bottom. A double bottom has two lows that are about the same level. The triple bottom has three lows that are about the same level.
Triple bottoms are much rarer in occurence. Therefore, we will not focus too much on it. You will find it more profitable to focus on other bullish reversal patterns.
Reverse Head and Shoulder
The reverse head and shoulder pattern is just a variation of the triple bottom. The difference is, the head and shoulders pattern does not have lows that are at the same level.
It is called the reverse head and shoulders because it is the mirror of a bearish reversal pattern called the head and shoulders.
The reverse head and shoulders looks just like the reverse image of the head and shoulders of a man. The stock price drops to around the left shoulder then rises again before dropping again.
The stock forms a lower low but then rises again forming the head. The sellers pushed the price down again. However, this time the stock cannot make a lower low. The stock stops dropping around the price area of the left shoulder. It rises again forming the right shoulder.
A side note: You can make a lot of money when a stock fails to make a lower low. Many traders will look to initiate buy positions when they see a stock failing to make a lower low. That is one of the reasons why the reverse head and shoulders pattern works well.
On the above picture, the blueline is the downtrend line and the red line is the head and shoulders neckline. The pattern is completed when the stock price forms the left shoulder, head and right shoulder and then returns to resistance at the neckline.
How to trade the head and shoulders
You can enter a trade at 1,2 or 3. Entering at 1 is more agressive while entering at 2 or 3 is less agressive. Chart patterns shows us possible entry areas. But ultimately it is up to traders and investors to choose the exact entry point. This of course, will depend on your experience and skill.
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