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Inverse Head and Shoulder Breakouts

By  +Follow August 26, 2013 9:15AM
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Classic head-and-shoulder patterns are often used to spot breakdowns, before a stock price drops. Learning how to find and trade “inverse” head and shoulder breakouts can be an effective strategy for finding new long trading entries as they’re about to occur.  In this article we’ll look at various examples of how to trade this strong reversal pattern.

Inverse Head and Shoulder Patterns For Swing Trading

New entries can be found following a inverse head and shoulders pattern, which looks like a series of 3 “cups”, in which new buyers come in at new highs.  As you can see in Figure 1, Endo Health Solutions Inc ($ENDP), there is a left shoulder, a “head”, and a right shoulder.  The ‘neckline’ connects the top of each shoulder, and the trading entry is placed just above this right shoulder high.


The basic pattern is also illustratated in Figure 1, so that you can see what to look for. Note that this pattern may often occur at a slight angle, as shown in the chart’s actual price action.  These entries are also effective in helping traders spot uptrend reversals following sell pressure.
For risk management, typical swing trading entry and exit setups are as follows: entry signal is placed .35 cents (thirty-five cents) above the high of the right shoulder. A maximum of 1.0 point stop-loss and trailing stop is used.  Scaling in to add to winning trades is done every 1 point, to double the share size during an uptrend, using a 1-point trailing stop to lock in profits.

Daily Candlestick Charts and Inverse Head and Shoulder Trades

Using a 90-day daily candlestick chart is an excellent way to scan for strong entry patterns.  It may be challenging at first to spot inverse head-and-shoulder long patterns.   It’s not always necessary to see a classic perfectly-formed pattern, as these are rare. The key is to find one that’s strong enough to generate a successful entry, and shows momentum of new buyers entering at new highs.
In Figure 2, MGM Resorts International ($MGM), the left shoulder area is seen from approximately June 10th through 18th, the head (bullish cup) is formed June 19th through 28th, and the right shoulder is July 2nd through 8th.   Seeing these multiple cup patterns helps identify new entries, as price action takes out new highs.When drawing the neckline, it’s best to be conservative and use the candles that best mark out a clear cup pattern (which looks like the letter “U”).  Entering too soon during consolidation often leads to choppy entries, so it’s smart to wait until new highs are confirmed prior to entering.

Day Trading With Inverse Head and Shoulder Breakouts

Using 1-minute candlestick charts to spot long entries for intraday trade opportunities can help traders quickly find potential trading opportunities. In Figure 3, Tesla Motors Inc. ($TSLA) we see a this inverse head and shoulder pattern with major resistance being near 149.5 on the neckline and both shoulders.


As is seen in the chart, correctly drawing the neckline would have us wait until a full thirty minutes after the rightmost shoulder was formed, prior to entering the trade.  Connecting the shoulder tops to establish the proper resistance area using the neckline can be a significant factor in helping wait until a very strong breakout is in progress, during which the trade entry is made.

Waiting for a good trade setup to materialize is where the inverse head and shoulder strategy is especially useful.  Traders often enter too early and get stopped out during consolidation or pullback areas.  Using a correctly-marked inverse head and shoulders pattern can help with this, b requiring traders to wait until after the rightmost shoulder has formed using the 1-minute candlestick chart, prior to entering their trades.
Ken Calhoun is a trading professional who has traded millions of dollars of equities since the 1990s, and is the producer of multiple award-winning trading courses and video-based training systems for active traders.  He is a UCLA alumnus and is the founder of TradeMastery.com and DaytradingUniversity.com, popular online educational sites that reach tens of thousands of active traders worldwide.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for ENDP
Daily Contracts
22 Oct 14 14:57:01
Real-Time feed of company contracts, original agreements and executive updates from Endo Health Solutions $ENDP http://t.co/LBAmN7ADRK
InterCooler
22 Oct 14 11:18:26
Endo International plc – Receives Neutral Rating from Zacks $ENDP http://t.co/AnNGsasD5c
Sleek Money
22 Oct 14 11:09:09
Zacks Reaffirms Neutral Rating for Endo International plc – $ENDP http://t.co/fym1nUEwzy
Market Int Center
22 Oct 14 08:21:42
Endo Pharmaceuticals $ENDP Trading Near $60.36 Support Level ( http://t.co/NUGEuyH9RB )
BNK Invest
22 Oct 14 08:10:32
Noteworthy ETF Outflows: $IJH $HSIC $ENDP $CHD #etfs http://t.co/MNbiLpTTnO
ETFChannel
22 Oct 14 08:10:28
Noteworthy ETF Outflows: $IJH $HSIC $ENDP $CHD #etfs: Symbols mentioned in this story: IJH, HSIC, ENDP, CH... http://t.co/dK7u6EbJQS
Stock Signaling
22 Oct 14 05:31:26
Visual Stock Comparison Tool: http://t.co/Vtx6dLy0Nw : $AL $SBNY $KEX $EXP $CHTR $HNR $POST $TUBE $MPC $ENDP $TERP $RCI $BAK $RCL $SWFT #dow
TipRanks
22 Oct 14 02:01:47
4-star analyst David Amsellem from Piper Jaffray reiterated a BUY rating on $ENDP. David has a +14.0% avg rtrn http://t.co/cB5EEAGnWd
Stockaholics
22 Oct 14 01:04:56
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $HLF $NUS $ENDP
John Ablemann
21 Oct 14 15:32:54
$ENDP Buzz Stocks: Advanced Micro Devices, Inc., Google Inc, and Endo International ... http://t.co/Ot8AeIsIkz
Assumption
21 Oct 14 14:33:02
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E B
21 Oct 14 07:36:29
@WallStJesus can u tell if $ENDP jan 70's bought or sold homie? look bought..
Stock Signaling
21 Oct 14 06:31:40
Upgraded Stocks Active in Pre-Market: $ILMN $ETFC $QLGC $GOOGL $XLNX $LPNT $NFLX $EXXI $MU $UNIS $TILE $EA $SYMC $IPXL $ENDP #investors
SIAnalystWire
21 Oct 14 04:04:50
Endo Pharmaceuticals $ENDP Weakness is a Buying Opportunity, Piper Jaffray Says http://t.co/cfMfNIawEt
The Fly
21 Oct 14 03:37:51
$ENDP Endo pullback brings buying opportunity, says Piper Jaffray: Full Story http://t.co/GoU5EBaxwn
Stockaholics
21 Oct 14 00:44:04
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $HLF $NUS $ENDP
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20 Oct 14 20:23:34
Our Penny Stock Picks Gained 371% In 2 Weeks! Get Our Next Pick Early: http://t.co/z2noBUWrEP $HLF $NUS $ENDP
Stock Moo
20 Oct 14 14:53:17
$endp: Endo to Announce Third Quarter 2014 Financial Results on November 5, 2014 http://t.co/sd7tEv4mrn
Stock Signaling
20 Oct 14 14:31:43
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NASDAQ
20 Oct 14 13:02:05
$ENDP - Endo to Announce Third Quarter 2014 Financial Results on November 5, 2014 http://t.co/QPoYTqBrcP
NASDAQ
20 Oct 14 13:02:03
$ENDP - Endo to Announce Third Quarter 2014 Financial Results on November 5, 2014 http://t.co/aiMvVb16Hl
BV Healthcare
20 Oct 14 13:01:19
$ENDP Endo to Announce Third Quarter 2014 Financial Results on November 5, 2014.. http://t.co/pdRDGqwDKs
Stockaholics
20 Oct 14 12:07:14
After Massive Gains On Penny Stock Picks, another New Pick Is Coming! Check it out: http://t.co/YX0NLZhRQ5 $HLF $NUS $ENDP
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20 Oct 14 11:32:17
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Irma Doucet
20 Oct 14 09:02:25
$ENDP Buzz Stocks: Advanced Micro Devices, Inc., Google Inc, and Endo International ... http://t.co/7GzAidKGak
Stock Signaling
20 Oct 14 06:31:23
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Jack Trader
20 Oct 14 06:01:12
$ENDP Buzz Stocks: Advanced Micro Devices, Inc., Google Inc, and Endo International ... http://t.co/2L1AZf6RtG
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19 Oct 14 00:30:27
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CantDoIt
18 Oct 14 23:37:10
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18 Oct 14 14:04:00
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18 Oct 14 13:50:55
IBIO Closed Up 69.84% After Our Penny Stock Alert! New Picks Coming: http://t.co/OG2rloNNni $HLF $NUS $ENDP
Dusty
18 Oct 14 13:25:11
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18 Oct 14 11:19:51
IBIO Closed Up 69.84% After Our Penny Stock Alert! New Picks Coming: http://t.co/OG2rloNNni $HLF $NUS $ENDP
Charley Lu
17 Oct 14 21:22:06
$HZNP topical OA analgesics mkt ~$400M; 5M Rx; $ENDP Voltaren leader, generic entry '16 http://t.co/NNvOgfJaKX
TickerChirp
17 Oct 14 17:54:04
Leading in Twitter Related to $ENDP on 10/18/2014 http://t.co/Iy1Fn2wWDY
PropThinker
17 Oct 14 07:59:53
FDA Continues to Quash Interest in $RPRX - http://t.co/mLxNufnxPb Credibility still an issue here. $ENDP
Stock Signaling
17 Oct 14 06:31:23
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Sleek Money
17 Oct 14 01:37:05
Endo International plc – Sees Significant Growth in Short Interest $ENDP http://t.co/ebGd4ve7MR
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17 Oct 14 01:00:04
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Stockaholics
16 Oct 14 17:02:53
ABPI Gained 1,587.50% In 3 days! Big News: http://t.co/FrVi9FtefG $HLF $NUS $ENDP
NASDAQ
16 Oct 14 14:46:02
$ENDP - Statement of Changes in Beneficial Ownership (4) http://t.co/aZVgDraIZE
US_proptrader
16 Oct 14 12:09:56
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16 Oct 14 06:31:14
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Stockaholics
15 Oct 14 23:57:18
ABPI Gained 1,587.50% In 3 days! Big News: http://t.co/7gQJ2ZCjuq $HLF $NUS $ENDP
InterCooler
15 Oct 14 23:35:36
Short Interest in Endo International plc – Expands By 59.3% $ENDP http://t.co/ln7QFk1qPU
US Banking News
15 Oct 14 23:34:59
Short Interest in Endo International plc – Expands By 59.3% $ENDP http://t.co/Eme43f0a8v
Stock Signaling
15 Oct 14 22:31:30
Healthcare Sector: Upgrades: $UTHR $SNY $HALO $CNAT $TEVA $UNIS $VRTX $IPXL $JNJ $ENDP $KND $Q $CORT $RNA $OSUR http://t.co/Vtx6dLy0Nw #spy
				
				
By  +Follow August 26, 2013 9:15AM
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