Trading Inverse Head and Shoulders

Inverse Head and Shoulders

3 Target

29.00

28.00

27.00

26.00

25.00

24.00

23.00

22.00 I

Trading Inverse Head and Shoulders Pattern

The example above illustrates the "Inverse Head and Shoulders" pattern formation from Microsoft Corporation's daily chart. In anticipation of Microsoft's Vista Operating System, investors drove the stock upside from August to December 2006. A neckline is drawn connecting the "Head and Shoulders" swing highs. In late July, Microsoft traded above the neckline and signaled a potential long trade.

1. Enter a "long" trade above high of the breakout bar at $24.

2. Place a "stop" below the right shoulder at $22.

3. Target the depth of the "Head and Shoulders" pattern ($3) from $24 to $27.

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