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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.

Results for ENDP
Vito the Guru
23 Apr 14 01:21:16
$STLD Are you thinking of selling $ENDP $AIG $USD #financialnews http://t.co/42gmbNzrEe
Luther Cox
23 Apr 14 01:07:30
Bearish or Bullish on these #stocks $ENDP $ROST $I $AAPL Check out http://t.co/TQ0na4WKas
Lilly Bynum
22 Apr 14 22:55:42
Buy or sell? $ENDP $ATR $SWI $PCLN #economy http://t.co/QT4tg9usa9
Robin Cage
22 Apr 14 22:30:05
Looking for the next $ENDP $SPG $AFG $FB Worth a look http://t.co/QCNBsMjyYR
Lutz Braune
22 Apr 14 18:56:19
$ENDP [video] Next big pharma target http://t.co/k37DgJga9s
Haiden Dallas
22 Apr 14 17:30:21
Looking for the next $SIVB $ENDP $KMPR $BWP #Research http://t.co/9wuIwXOFTJ
Josue Dollar
22 Apr 14 17:04:35
Looking for the next winners like $VR $SPLS $ENDP $LGND Must have http://t.co/mkY3282mHK
Albert Perales
22 Apr 14 16:24:04
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Jama Dahl
22 Apr 14 16:08:38
Are you hanging on to $LO $ABT $ENDP $OPK View now http://t.co/ydvkQ2MwlX
EquityNYC
22 Apr 14 14:53:39
@FundyLongShort Not sure. $ABT? $PRGO? $ZTS? Or 3 to 4 $8-$10bn deals like $COO and $ENDP. I'd like to see that list he gave Ackman!! :)
StockSpotter
22 Apr 14 14:09:55
$ENDP up 2.8% to 61.53 possible bullish reversal? #stocks #options #trading http://t.co/tCrswonssH
Octavio Van
22 Apr 14 13:54:08
Looking for research on $AVX $XRX $ENDP $BLOX Check out http://t.co/XaWSujQvS9
Maxx Leatherby
22 Apr 14 13:46:56
Whats going on with $ENDP $DHI $ALSN $GRPN #NASDAQ http://t.co/8NvFsG2YQq
Ansel Galvan
22 Apr 14 13:23:55
$ALLE Stocks to Watch this week $ENDP $EIX $CADX #wealthmanagement http://t.co/zFW0BdGtQM
Josue Dollar
22 Apr 14 13:08:50
#Stocks you migh want to Sell $G $ENDP $SPG $RAX Check out http://t.co/SO9jMnO49f
Melissa Lee
22 Apr 14 12:16:55
Next potential targets in biotech/pharma? @mergermarket analyst tells @StreetSignsCNBC: $AUXL $ENDP $SHPG $TEVA
stocknews247
22 Apr 14 12:02:23
$ENDP - [video] New age of shareholder activism -> http://t.co/Yo1xOcXzqe #stock #stocks #stockaction
MarketNews
22 Apr 14 11:55:30
$ENDP - [video] Next big pharma target -> http://t.co/19nhn50Ysr #stock #stocks #stockaction
Babara Blodgett
22 Apr 14 11:54:11
Do you need #Stock #Research on $ENDP $GIS $SWK $ISRG #overvalued http://t.co/2UaRqx0ZpD
Allen
22 Apr 14 11:10:53
Took profits on $ENDP
DynamicCharts
22 Apr 14 09:04:08
Open Positions - Here is What: $AAPL Short $BA Neutral $COST Closed all $ENDP Short $FB Short $NFLX Short $SPY Long $TWTR Long
12Stocks.com
22 Apr 14 08:50:26
MidCap #Stocks Performance $HOG $NFLX $PRGO $JAZZ $ENDP $SLXP $WYNN $CE $DDD $ALKS $WCN $MGM $IPG $ALXN more@ http://t.co/H27z0IZCEk
Options analyst
22 Apr 14 08:41:32
$tsla member nailed it that he sent me his trade log, bot calls at 4.75$, sold@ 11.80$ $fb $twtr $endp $feye $bac $sune $su
Babara Blodgett
22 Apr 14 07:14:55
Should you hold or add to $ENDP $WEC $CVI $CI #moneymanagement http://t.co/JbP6rSmfL6
EquityNYC
22 Apr 14 06:36:42
@FatTailCapital Interesting that we're getting more love in $ENDP than $VRX this morning.
ok_trader
22 Apr 14 06:32:07
RT @szaman Watch List 04/22/14 http://t.co/WMFd5oE24h $ENDP $FEYE $YELP $TWTR and more. << good for active traders
Maribeth
22 Apr 14 05:48:19
RT @szaman: Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
NYC Trader
22 Apr 14 05:15:59
Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
Patty Porter
21 Apr 14 23:21:19
Latest information on #stocks like $YHOO $ENDP $OI $CSIQ #wealthmanagement http://t.co/mChNadFeDh
TradeTexasBig
21 Apr 14 19:32:12
RT @szaman: Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
Erick
21 Apr 14 18:34:41
RT @szaman: Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
Edmond Flores
21 Apr 14 18:15:43
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Steph Seguin
21 Apr 14 18:09:23
RT @szaman: Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
Fat Tail Capital
21 Apr 14 17:30:42
Will be interesting to see how $ENDP reacts. Do ppl sell it to buy $VRX or vice versa? We always said one more big deal and they're done.
Sonny Chung
21 Apr 14 17:26:27
RT @szaman: Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
Brandon Penrod
21 Apr 14 16:39:42
RT @szaman: Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
Maribeth
21 Apr 14 16:35:05
RT @szaman: Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
Woll Street
21 Apr 14 16:33:16
RT @szaman: Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
NYC Trader
21 Apr 14 16:30:37
Watch List 04/22/14 http://t.co/gYdaxRo2FJ $ENDP $FEYE $YELP $TWTR and more.
Stockaholics
21 Apr 14 16:17:59
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12Stocks.com
21 Apr 14 16:00:46
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Walden Gretzky
21 Apr 14 15:52:37
#Stock Watchlist you should be looking at $BMC $THG $ENDP $IBM #moneymanagement http://t.co/ICzDwIhzsm
Stock Occulus
21 Apr 14 15:12:31
Looking for the next $ENDP $TYC $WCRX $FEYE #NSE http://t.co/pWQvsM84ae
Adam Benetti
21 Apr 14 14:48:00
RT @OptionsHawk: $MYL $ENDP bid higher A/H on $VRX / $AGN - Merger Mania - $IPXL a sneaky name that could be in play as well
Elam Rajaguru
21 Apr 14 14:46:26
RT @OptionsHawk: $MYL $ENDP bid higher A/H on $VRX / $AGN - Merger Mania - $IPXL a sneaky name that could be in play as well
Joe Kunkle
21 Apr 14 14:46:12
$MYL $ENDP bid higher A/H on $VRX / $AGN - Merger Mania - $IPXL a sneaky name that could be in play as well
Mr.Incredible
21 Apr 14 14:05:00
$ENDP gap up after hours. Missed May $60 calls under $2 last week.
Alfred Jaxon
21 Apr 14 13:27:06
Looking for the next winners like $INTA $APC $ENDP $DF #financial http://t.co/4pOlxEzrwW
Stock Status
21 Apr 14 13:21:11
After-hours most declined $SLXP http://t.co/75iTWxASw5 $ENDP http://t.co/ImksKu3wQX $PTX http://t.co/TGcetaof8F $AMRS http://t.co/ndJgtDeXXf
				
				
By  +Follow August 26, 2013 9:15AM
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