what is the inverse head and shoulders 
the inverse head and shoulders chart pattern is a bullish chart formation that signals a potential reversal of a downtrend it is the opposite of the head and shoulders chart pattern which is a bearish formation 2the inverse head and shoulders chart pattern consists of three 3 troughs the first and third troughs are roughly equal in depth and are known as shoulders while the second trough is deeper and is called the head 2a description of the inverse head and shoulders chart patternthis chart pattern formation is commonly used in technical analysis to predict the reversal of a downtrend it is a bullish signal that is essentially the reverse of the regular head and shoulders chart pattern which is a bearish indicator the structure of the inverse head and shoulders chart pattern is described as follows the psychology leading to the formation of the inverse head and shoulders chart patternthe psychology behind the formation of the inverse head and shoulders pattern can be understood through the changing sentiment among traders and investors during its development on the left shoulder the overall sentiment is pessimistic the sellers are still in control then a minor rally begins to occur as some traders think the security is oversold however this rally is short lived as the dominant sentiment is still bearish next with the formation of the head of the inverse head and shoulders pattern the sentiment moves from extremely pessimistic to cautiously optimistic the price of the respective asset drops even lower than the left shoulder indicating strong selling pressure the drop to a new low may trigger panic selling however this extreme point often attracts value investors who consider the asset significantly undervalued leading to a rally the right shoulder now begins to form the sentiment is cautiously optimistic to optimistic the price declines again but not as low as the head indicating waning selling pressure the shallower low suggests that sellers are losing steam and buyers are starting to gain confidence the sentiment starts to shift from bearish to bullish finally with the breaking of the neckline optimism turns into bullishness the price breaks above the neckline often on higher volume the break above the neckline confirms the bullish reversal leading to more traders who had previously been on the sidelines stepping into the market this often fuels a strong upward move understanding trader psychology is crucial in technical analysis behavioral finance studies suggest that chart patterns like the inverse head and shoulders can be explained by cognitive biases such as herd behavior and representativeness heuristic 1