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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
Eric Shaw
17 Sep 14 06:33:26
My watch list: $FDX $UPS $AUXL $ENDP $AGIO $STLD $X $AVNR $RWLK $RAX $ADBE $RTRX $SNE $WB $YHOO
Kevin_Dixon
17 Sep 14 06:31:49
FADE the GAPS: $X $AKS $DD $AUXL $YRCW $ENDP & FILL the GAPS: $RAX $SXL $SNE $OI $ADBE $PDLI
Andrew Borzello
17 Sep 14 06:29:27
RT @Patrick97398715: #VOLUMESHIFTUP $IFON $FDX $LEN $IMUC $ENDP $AGIO $AUXL $SINO $DD $CBRL #quantheta
Andrew Borzello
17 Sep 14 06:29:24
RT @bullishsay: Pre-Market mover are $LOCO $DD $AUXL $IMUC $X $CTIC $PERI $OTIV $SINO $NUE $ENDP. Remember it a FED day. Do your own DD. Go…
Day Trade Alerts
17 Sep 14 06:28:43
RT @theflynews: $FDX $RAX $SNE $AUXL $ENDP $QLTI $X $AKS $DD $GIS $CTIC $PERI $IACI $RTRX $ADBE On The Fly: Pre-market Movers:... http://t.…
Dieter Hovekamp
17 Sep 14 06:27:58
RT @zbiotech: cowen sums up my thoughts on $ENDP $AUXL deal to near perfection http://t.co/onSZBIjJIX
SMB Capital
17 Sep 14 06:27:26
Some stocks the desk is watching: $X $AUCL $ADBE $RAX $ENDP http://t.co/SAPv48qjLX
Eternity101
17 Sep 14 06:24:50
RT @OpenOutcrier: Good morning. Wish I had some $AUXL calls. Stock up almost 50% after receiving offer from $ENDP
ElPelonCito
17 Sep 14 06:23:52
$endp deal not impressive. Surprised they haven't bid for $bdsi. Think Sirgo is happy to go it alone.
Open Outcrier
17 Sep 14 06:23:25
Good morning. Wish I had some $AUXL calls. Stock up almost 50% after receiving offer from $ENDP
Violex
17 Sep 14 06:18:38
Pre-Market mover are $LOCO $DD $AUXL $IMUC $X $CTIC $PERI $OTIV $SINO $NUE $ENDP. Remember it a FED day. Do your own DD. Good Luck!
Anmol Singh
17 Sep 14 06:17:30
Going to be an interesting day today. Some stocks I am watching for daytrades $GIS $OI NUE $TKMR $FDX $DD $LEN $GOGO $ENDP $AGIO $UAL $UA
Value Line
17 Sep 14 06:16:18
#Stocks to watch from The Value Line Investment Survey: $LEN $FDX $SNE $ADBE $GIS $AUXL $ENDP $RAX http://t.co/fxzmsJn5va
Marty Chilberg
17 Sep 14 06:12:52
#premarketmovers $rax,$x, $adbe, $endp, $auxl http://t.co/WpTw7mzGsu #proboards
The Fly
17 Sep 14 06:11:08
$FDX $RAX $SNE $AUXL $ENDP $QLTI $X $AKS $DD $GIS $CTIC $PERI $IACI $RTRX $ADBE On The Fly: Pre-market Movers:... http://t.co/PnZE8JNWPa
ArbitrOption
17 Sep 14 06:10:46
$AUXL discloses unsolicited offer to be acquired by $ENDP for $28.10 per share in cash and ENDP stock http://t.co/dQNoWh4vs1
Zonebourse News
17 Sep 14 06:10:11
USA-Auxilium Pharma en butte à une OPA hostile http://t.co/QQTGq6TFB3 $QLT $AUXL $ENDP
WSJ Health News
17 Sep 14 06:08:29
RT @pharmalot: Pharmalot.. Pharmalittle.. Good Morning.. lots of sunshine $ headlines.. http://t.co/QpvQLAdIbL #pharma $ENDP $AUXL $SLXP $A…
G6Trading
17 Sep 14 06:07:22
G6T Morning Hot List: $RAX $GIS $ADBE $LEN $FDX $ENDP $NUE $UPS $AKS $AUXL $DD $X
Market Newswire
17 Sep 14 06:00:59
Auxilium confirms unsolicited Endo bid, - http://t.co/Mp5NvuFOrz $ENDP #wallstreet #stock #finance
Patrick
17 Sep 14 06:00:04
#VOLUMESHIFTUP $IFON $FDX $LEN $IMUC $ENDP $AGIO $AUXL $SINO $DD $CBRL #quantheta
Day Trader
17 Sep 14 05:58:36
$QLTI falls x $AUXL $ENDP merger
Stock Status
17 Sep 14 05:58:05
Pre-Market #stocks Advanced $ENDP http://t.co/6UarITMXQu $RWLK http://t.co/zgWrP502lV $CAMT http://t.co/UB8Pczl4NV
Pristine Trading
17 Sep 14 05:55:32
ESP GAP Up: $AUXL $X $AKS $GOGO $ARWR $ENDP $NUE $LEN $DD $FDX #stocks #stockmarket
Jerry Khachoyan
17 Sep 14 05:50:36
Alright, a decent list of names moving/gapping pre-market: $X $RAX $ADBE $GIS $LEN $FDX ARWR $AUXL $ENDP $DD $SNE $RTRX $YRCW $AKS $IFON
okosa
17 Sep 14 05:48:21
Auxilium to review Endo offer, adopts 1-year holder rights plan $AUXL $ENDP
Amanda Micklus
17 Sep 14 05:46:12
$AUXL not doing anything about $QLTI merger http://t.co/Mr164NMot1 yet http://t.co/Dxu0igKM7A; rec'd bid from $ENDP http://t.co/6umg6YPKke
Sarah Karlin
17 Sep 14 05:45:09
To get caught up on today's #testosterone mtg read @brendasandburg's preview: http://t.co/tzi5zzi2sO cos affected include $ABBV, $LLY, $ENDP
zach
17 Sep 14 05:45:02
cowen sums up my thoughts on $ENDP $AUXL deal to near perfection http://t.co/onSZBIjJIX
Alex Galan
17 Sep 14 05:44:04
RT @ACInvestorBlog: Pre-market movers $AUXL $AGIO $PERI $ACFC $ARWR $OTIV $ENDP $RWLK $GPRO $CAMT $IFON $IMUC
Freefdawatchlist
17 Sep 14 05:43:57
http://t.co/B40ypZ7x06 Day trade watchlist:$IFON, $X, $AUXL, $ENDP, $CIVI, $AKS, $IMUC, $CLF, $YRCW, $SNE, $ARWR, $AVNR, $DUS, $NUGT, $SINO
Natalie Grover
17 Sep 14 05:40:34
Auxilium Pharma backs QLT deal, adopts poison pill after Endo's bid http://t.co/QdZevP3UPa via @reuters $AUXL $ENDP $QLT
Antonio Costa
17 Sep 14 05:38:13
Pre-market movers $AUXL $AGIO $PERI $ACFC $ARWR $OTIV $ENDP $RWLK $GPRO $CAMT $IFON $IMUC
Laffitte Capital
17 Sep 14 05:37:46
Endo International $ENDP to buy Auxilium Pharma $AUXL for $2.2bn or $28.10/sh ~30% premium http://t.co/JT8WucOZqR
galenoweb
17 Sep 14 05:36:16
RT @pharmalot: Pharmalot.. Pharmalittle.. Good Morning.. lots of sunshine $ headlines.. http://t.co/QpvQLAdIbL #pharma $ENDP $AUXL $SLXP $A…
Dilek Celik
17 Sep 14 05:35:47
4% + pre gainers: $AUXL $IMUC $CTIC $IFON $ACFC $X $PERI $AGIO $ENDP $AKS $ARWR $YRCW $ENDP $OTIV
12Stocks.com Biotech
17 Sep 14 05:34:07
Endo's $2.2 bln offer could complicate Auxilium Pharma's QLT deal.. http://t.co/vvx98p9tCv $ENDP #biotech #stocks
12Stocks.com Biotech
17 Sep 14 05:33:51
Endo offers to buy Auxilium Pharma for about $2.2 billion.. http://t.co/dxPDnhIKgG $ENDP #biotech #stocks
12Stocks.com Biotech
17 Sep 14 05:33:34
Auxilium Responds To Unsolicited Proposal From Endo International.. http://t.co/R0afbyuCmE $ENDP #biotech #stocks
12Stocks.com Biotech
17 Sep 14 05:33:18
Auxilium Pharma adopts poison pill after Endo's unsolicited bid.. http://t.co/p0KyoFmHgE $ENDP #biotech #stocks
12Stocks.com Biotech
17 Sep 14 05:33:01
[$$] Auxilium Confirms Endo Bid.. http://t.co/q5QxYeKPQL $ENDP #biotech #stocks
12Stocks.com Biotech
17 Sep 14 05:32:44
Auxilium confirms unsolicited Endo bid.. http://t.co/qtN5Bu6viX $ENDP #biotech #stocks
Michail Shadkin
17 Sep 14 05:28:47
$ENDP early further pop to near 70 think interesting fade point. (currently 68.70 premarket)
Stefanie Ilgenfritz
17 Sep 14 05:26:33
RT @pharmalot: Pharmalot.. Pharmalittle.. Good Morning.. lots of sunshine $ headlines.. http://t.co/QpvQLAdIbL #pharma $ENDP $AUXL $SLXP $A…
pharmalot
17 Sep 14 05:24:47
Pharmalot.. Pharmalittle.. Good Morning.. lots of sunshine $ headlines.. http://t.co/QpvQLAdIbL #pharma $ENDP $AUXL $SLXP $AGN $AZN $GILD
Jacob Plieth
17 Sep 14 04:56:26
Clearly $QLTI isn't enough of a poison pill in itself $AUXL $ENDP
SAC Tracker
17 Sep 14 04:53:27
US FDA AdCom to review the label indication and safety of many #testosterone products today $ABBV $ACT $AUXL $ENDP $RPRX $LPCN #BRUDAC #DSRM
FirstWord Pharma
17 Sep 14 04:51:37
UPDATE: Auxilium adopts poison pill as weighs Endo bid http://t.co/p88vezwT9z $AUXL $ENDP #pharma
4-traders.com
17 Sep 14 04:45:02
Auxilium Pharma adopts poison pill after Endo's unsolicited bid http://t.co/bpsXVzaTHc $AUXL $QLT $ENDP
V.S. Schulz
17 Sep 14 04:42:13
$AUXL Responds To Unsolicited Proposal From $ENDP http://t.co/AXTw1txfKX.
				
				
By  +Follow August 26, 2013 9:15AM
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