Reverse Head and Shoulders

Reverse head and shoulders


The reverse head and shoulders is the opposite of what a conventional head and shoulders pattern looks like. It is formed by having a low in between two higher lows. Chartists often  interpret this as a sign of strength.

As the price of the security breaks above the neckline, the reversal is confirmed as the price move upwards significantly. The magnitude of the price movement upwards is estimated to be at least the value of the difference between the neckline and the low of the head.

In the reverse head and shoulders pattern, the neckline is seen as a resistance line.

What option traders can do to take advantage of the reverse head and shoulders?

Option traders can initiate bullish positions as the price breaks above the neckline or can exit a bearish position as the reverse head and shoulders form.