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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
Market Int Center
28 Aug 14 08:04:03
Potential Endo Pharmaceuticals $ENDP Trade Has 4% Downside Protection ( http://t.co/QMU7iceYDl )
Florida Biotech
27 Aug 14 13:38:04
RT @Stocks_Biotech: Glaxo's Promacta Label Now Includes Severe Aplastic Anemia.. http://t.co/rQcmTRs2fg $ENDP #biotech #stocks
12Stocks.com Biotech
27 Aug 14 13:34:00
Glaxo's Promacta Label Now Includes Severe Aplastic Anemia.. http://t.co/rQcmTRs2fg $ENDP #biotech #stocks
12Stocks.com Biotech
27 Aug 14 10:17:05
Amicus Therapeutics Hits 52-Week High on Migalastat Data.. http://t.co/K9udSKPr6x $ENDP #biotech #stocks
TickerChirp
26 Aug 14 18:26:05
Prevalent Tweets for $ENDP on 08/27/2014 http://t.co/LpxaKF9lVm
Peter Bardens
26 Aug 14 13:32:28
$ENDP Endo International PLC PT Raised to $84.00 (ENDP) http://t.co/wQk7HIaIJc
Financial Headlines
26 Aug 14 10:17:38
$ENDP: Flamel Technologies SA (FLML) in Focus: Stock Rises 8% http://t.co/VVuE6edx8Z http://t.co/kJGMGmHdsY
Daily Contracts
26 Aug 14 09:56:00
Real-Time feed of company contracts, original agreements and executive updates from Endo Health Solutions $ENDP http://t.co/LBAmN7ADRK
Market Int Center
26 Aug 14 06:20:31
Potential Endo Pharmaceuticals $ENDP Trade Targets 3.77% Return ( http://t.co/Pwrbhj2zwT )
Florida Biotech
26 Aug 14 05:52:06
RT @Stocks_Biotech: Catalyst Pharmaceutical Partners (CPRX) Worth Watching: Stock Up 10.3%.. http://t.co/1g2jbr76Y8 $ENDP #biotech #stocks
12Stocks.com Biotech
26 Aug 14 05:34:06
Catalyst Pharmaceutical Partners (CPRX) Worth Watching: Stock Up 10.3%.. http://t.co/1g2jbr76Y8 $ENDP #biotech #stocks
FonsieTrader
26 Aug 14 04:18:05
Parabolic Sar Buy Signals 1/2 $ABIO $ALU $ANAC $ANIK $APA $BAS $BCS $BMY $CHK $DTV $ENDP $GMED $GTXI $HES $INFI http://t.co/mVqp9gmOFM
Jahi Faucette
25 Aug 14 14:30:01
RT @globeinvestor: 11 pharma stocks with upside potential http://t.co/7hqm3xeD6p $VRX $PFE #UTHR $MYL $JAZZ $PRGO $ENDP $TARO $AUXL $ICLR $…
Jahi Faucette
25 Aug 14 14:27:52
RT @OptionsHawk: $ACT $ALLE $ENDP $WAG $HELE $JAZZ Hedge Funds Bet Big on Overseas Tax Deals - http://t.co/uu9s4tLE7C
Business News Now
25 Aug 14 13:17:51
$ENDP: Endo International PLC Short Interest Down 10.6% in July (ENDP) http://t.co/jcR3m9lU57 http://t.co/kQuyEkSvsD
Anthony
25 Aug 14 12:47:49
RT @WallStJesus: $ENDP buyer of 1000 Oct $70 calls 1.05, opening
MoneyMakingStocks
25 Aug 14 12:46:51
RT @WallStJesus: $ENDP buyer of 1000 Oct $70 calls 1.05, opening
JE$US
25 Aug 14 12:42:04
$ENDP buyer of 1000 Oct $70 calls 1.05, opening
HedgeMind
25 Aug 14 12:17:26
What are top MidCaps held by #hedgefunds? $SUNE $TEX $CYH $ENDP $BEAV...David Einhorn is the largest holder of $SUNE http://t.co/tvugUqUrUy
Stock Signaling
25 Aug 14 09:01:51
Movers and Shakers: Making Range Advances: $ADXS $MOBL $KERX $THI $YGE $MM $OPK $AMGN $BAS $INFN $ROYT $AXAS $ENDP $ARIA $ISIS #stock #mkt
Clair Voight
25 Aug 14 09:00:56
$ENDP Endo International PLC (ENDP), Walgreen Company (WAG), Charter ... http://t.co/ED5lOG0I4c
FierceMedicalDevices
25 Aug 14 08:38:05
Endo reported to be selling its AMS med-dev unit http://t.co/iby6Aphv8E $ENDP
Myrollingstocks
25 Aug 14 07:20:12
Check out $ENDP http://t.co/QUooXi88S2
Market News Desk
25 Aug 14 07:17:38
$ENDP: Anacor's Q2 Loss Narrower than Expected, Kerydin in Focus http://t.co/NDcDpTwcGd http://t.co/JCN8gNSvbt
Media Sentiment
25 Aug 14 07:01:16
$ENDP received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 136
James P Worthy
25 Aug 14 07:01:13
$ENDP Endo International PLC PT Raised to $84.00 (ENDP) http://t.co/6dpxWAhmZj
Market Int Center
25 Aug 14 07:00:06
Endo Pharmaceuticals $ENDP Showing Bearish Technicals ( http://t.co/bzQL84iW6W )
12Stocks.com Biotech
25 Aug 14 05:40:24
[$$] Corporate Watch.. http://t.co/PwSq3kA35a $ENDP #biotech #stocks
Stock Signaling
25 Aug 14 01:01:38
Insider Buys: $COST $GLW $FLO $MNGA $APH $ACI $RFMD $WTFC $HIW $IRF $HA $TER $BMRN $ENDP $GIS http://t.co/Vtx6dLy0Nw #investing #analytics
Polyticks
24 Aug 14 01:30:09
RT @GillianTan: Scoop with @danacimilluca: Recently-inverted Endo puts medical-device unit AMS on the auction block http://t.co/2fIgslE0y4 …
Crooked Capital
22 Aug 14 19:18:53
RT @rickcarew: BIG scoop on a hedge fund hotel,mini $VRX.Congrats!MT @danacimilluca Endo seeks buyer for ~$2B medical-device unit AMS. w/@…
EquityC
22 Aug 14 19:09:04
RT @rickcarew: BIG scoop on a hedge fund hotel,mini $VRX.Congrats!MT @danacimilluca Endo seeks buyer for ~$2B medical-device unit AMS. w/@…
Rick Carew
22 Aug 14 19:03:41
BIG scoop on a hedge fund hotel,mini $VRX.Congrats!MT @danacimilluca Endo seeks buyer for ~$2B medical-device unit AMS. w/@gilliantan $ENDP
Soyoung Kim
22 Aug 14 17:38:14
RT @GillianTan: Scoop with @danacimilluca: Recently-inverted Endo puts medical-device unit AMS on the auction block http://t.co/2fIgslE0y4 …
Biz Headlines
22 Aug 14 17:17:38
$ENDP: Intercept Pharmaceuticals Posts Earnings, Pipeline in Focus http://t.co/UB3IO61AFH http://t.co/5oHQCQrP1L
WSJ Deals
22 Aug 14 17:06:19
RT @GillianTan: Scoop with @danacimilluca: Recently-inverted Endo puts medical-device unit AMS on the auction block http://t.co/2fIgslE0y4 …
Ismael Tillawi
22 Aug 14 16:33:07
RT @GillianTan: Scoop with @danacimilluca: Recently-inverted Endo puts medical-device unit AMS on the auction block http://t.co/2fIgslE0y4 …
Gillian Tan
22 Aug 14 16:30:22
Scoop with @danacimilluca: Recently-inverted Endo puts medical-device unit AMS on the auction block http://t.co/2fIgslE0y4 $ENDP
Clair Voight
22 Aug 14 07:31:16
$ENDP Endo International Files 8K - Other Events >ENDP http://t.co/sTyTidS1Gl
ElPelonCito
22 Aug 14 04:30:48
Hydrocodone combos rescheduling provides the upside scenario for $ENDP $BDSI and bema-buprenorphine if approved next year
NASDAQ
21 Aug 14 13:10:18
$ENDP - Statement of Changes in Beneficial Ownership (4) http://t.co/ayiNRkYZZe
Daily Contracts
21 Aug 14 10:39:00
Real-Time feed of company contracts, original agreements and executive updates from Endo Health Solutions $ENDP http://t.co/LBAmN7ADRK
Stock Updates
21 Aug 14 10:17:38
$ENDP: Athersys Loss In Line with Expectations, Revenues Down Y/Y http://t.co/7AzAObY17m http://t.co/QsfzGEbGFx
12Stocks.com Biotech
21 Aug 14 10:14:09
Gilead (GILD) Hits 52-Week High Thanks to Sovaldi.. http://t.co/oTcgXE4GXd $ENDP #biotech #stocks
Daily Contracts
21 Aug 14 09:20:00
Real-Time feed of company contracts, original agreements and executive updates from Endo Health Solutions $ENDP http://t.co/UsZLFHY9vV
Florida Biotech
20 Aug 14 18:05:15
RT @Stocks_Biotech: Alcobra Starts Patient Enrollment for Mid-Stage Study on MDX.. http://t.co/hVjMtKz2C9 $ENDP #biotech #stocks
				
				
By  +Follow August 26, 2013 9:15AM
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