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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. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for ENDP
ProTradersNews
22 May 15 15:57:12
$ENDP $CVS: Endo, CVS Health Deals Inked: http://t.co/Hs7zeVHqcM
Capital Market Labs
22 May 15 15:50:35
$ENDP vs. $MNK vs. $JAZZ vs. $ZTS Compared Across 9 Critical Measures http://t.co/RCNnrH73ct http://t.co/u5BdQ2ryuk
dailystockplays.com
22 May 15 14:52:07
MACD Bullish http://t.co/V2ZNliaaSW $IEI $FICO $ENDP $VIA $VIAB $CMCSA $CMCSK $LXFT $VLP $LEAF $IPXL $FNGN $EXAM $REV $ACAT $CSU $ETO $SJR
Analyst Actions
22 May 15 13:01:02
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/Sxnl1rGwXM
BreakingStocksNews
22 May 15 12:58:03
$ENDP $LL: Top 10 News for 5/18 - 5/22: Fed Rate Hike Pushed Back; Icahn ...: http://t.co/MPuC9awbIn
Analyst Actions
22 May 15 12:49:01
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/jlEaaCN1vW
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22 May 15 12:47:57
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22 May 15 10:58:00
When the CEO of Valeant mentions "bubble", you better believe him. http://t.co/OnT6uV7M2e $VRX $ACT $ENDP
Analyst Actions
22 May 15 10:17:02
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/nfXbMdjkD7
SADIF-Analytics
22 May 15 10:08:54
Endo International PLC $ENDP Rating Has been revised by SADIF. http`~~http://t.co/I4Ut4LTN5j~report~504957
Breaking News Now
22 May 15 09:27:02
$ENDP: Will This Analyst Action Affect Endo Int'l. (ENDP) Stock?: http://t.co/4eGq9FKNEv
dougheuring
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Cantor $ENDP http://t.co/OgFNMcVpUw
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Analyst Actions
22 May 15 09:03:01
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/y51wFlwP03
SADIF-Analytics
22 May 15 09:02:11
Endo International PLC $ENDP Rating Has been revised by SADIF. http`~~http://t.co/I4Ut4LTN5j~report~504957
Market Int Center
22 May 15 09:01:11
Endo Pharmaceuticals $ENDP Trading Near $83.37 Support Level ( http://t.co/9sfFCK5pJ3 )
US Banking News
22 May 15 09:00:27
Cantor Fitzgerald Increases Endo International plc – Price Target to $92.00 $ENDP http://t.co/MF2HuPIgwx
WKRB News
22 May 15 08:49:27
Endo International plc – Price Target Increased to $92.00 by Analysts at Cantor Fitzgerald $ENDP http://t.co/D4u2viYFEA
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$DRNK Gained 600% In 11 Trading Days! Huge Update On This Monster: http://t.co/DsO93qKXfr $HLF $NUS $ENDP
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Sleek Money
22 May 15 08:05:34
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22 May 15 07:54:24
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ProVesting
22 May 15 07:54:03
$ENDP: Endo International plc – PT Raised to $110.00 (ENDP): http://t.co/fkifvDuPTV
BreakingStocksNews
22 May 15 07:38:03
$VRX $ENDP: Valeant CEO: Healthcare Sector A 'Bit Of A Bubble': http://t.co/lVrdZ7Q4hO
Quantpost Healthcare
22 May 15 07:36:12
$VRX News: "Valeant CEO: Healthcare Sector A 'Bit Of A Bubble' $ACT $ENDP $VRX" http://t.co/zp71dj25TE Analyze: https://t.co/r645m5TU05
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22 May 15 07:36:11
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Breaking News Now
22 May 15 06:09:03
$ENDP: Stock Technical Report on Endo International PLC (NASDAQ:ENDP): http://t.co/A4MbfsCNDM
Analyst Actions
22 May 15 05:56:02
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22 May 15 05:50:34
Endo International plc – Receives “BB” Credit Rating from Morningstar $ENDP http://t.co/eEawglRwFr
Analyst Actions
22 May 15 05:47:02
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/fCrOJwhHjQ
ProVesting
22 May 15 05:44:03
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Capital Market Labs
22 May 15 05:41:11
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Analyst Actions
22 May 15 05:38:01
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/sdt3ghu0tJ
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22 May 15 05:32:02
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Analyst Actions
22 May 15 05:07:01
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Analyst Actions
22 May 15 04:36:02
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/0GqeEorUxB
Analyst Ratings
22 May 15 04:15:48
Endo International plc -'s PT raised by Cantor Fitzgerald to $92.00. http://t.co/MqWbHlHKPc $ENDP #ENDP
Ticker Report
22 May 15 04:11:54
Cantor Fitzgerald Raises Endo International plc – Price Target to $92.00 $ENDP http://t.co/OjKx15uQTm
Dakota Financial
22 May 15 04:09:26
Cantor Fitzgerald Raises Endo International plc – Price Target to $92.00 $ENDP http://t.co/tSKc5qRdGU
ProTradersNews
22 May 15 04:08:05
$ENDP: Cantor Fitzgerald Raises Endo International plc - Price Target to ...: http://t.co/uFvgOwgLzW
US Consumer News
22 May 15 04:01:47
Endo International plc -'s PT raised by Cantor Fitzgerald to $92.00. http://t.co/byeKBrOJVS $ENDP #ENDP
Breaking News
22 May 15 03:58:02
$ENDP: Endo International (ENDP) PT Raised to $92 at Cantor Fitzgerald: http://t.co/yc5YaJPfUi
Analyst Actions
22 May 15 02:54:02
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/3P7sTqpJyL
Analyst Actions
22 May 15 00:31:02
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/lCNRdq18tb
Analyst Actions
22 May 15 00:04:02
$ENDP: Analyst action by JP Morgan on Endo International: http://t.co/0kLxJx3MXO http://t.co/V10FJRSobQ
				
				
By  +Follow August 26, 2013 9:15AM
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