The inverse head and shoulders has three troughs: left shoulder, head (deepest trough), and right shoulder (shallower than the head). The highs between the three troughs form the neckline; a breakout above confirms the pattern — the classic bottom reversal.
Progressive exhaustion of bearish pressure. The head makes a new low but the right shoulder fails to follow, showing weakening selling. Breaking the neckline triggers widespread short-covering.
Enter long on a high-volume breakout above the neckline (win rate 73%). Stop-loss below the right shoulder's low. Target = head-to-neckline distance added to the breakout point.
Volume expansion on the neckline breakout is essential. Upward-sloping neckline strengthens the signal.