Inverse Head and Shoulders: the Rule, the Levels, a Real Example
The rule we use to find it in 2,000 stocks every night, the four levels, and one real example.
An inverse head and shoulders is three lows where the middle one is the deepest, with a horizontal line, the neckline, across the two highs between them. It is the most reliable bottoming pattern in classical charting when it is read strictly, and the most abused when it is not. This page is the rule we use to find it in about 2,000 US stocks after every close, and one real example from the nightly letter.
The rule
What has to be there
Read on weekly bars. Three lows where the middle one is clearly the lowest, shoulders within 10% of each other, a horizontal neckline at the higher of the two reaction highs. The pattern has to be at least 12% tall relative to the neckline and the right shoulder has to have held. A pattern that follows a decline is a bottom; the same shape inside an uptrend is a continuation, and we label it that way.
What disqualifies it
- It only exists on daily bars. The shape shows up every few weeks there and means little; we read it on weekly bars.
- The neckline has to be tilted to make the breakout happen sooner. We draw it horizontal at the higher high, or not at all.
- The right shoulder has not finished. A shoulder still forming is a guess, not a pattern.
- The stock is under a falling 200-day average. A bottom fighting a falling long-term average is a short-covering rally more often than a trend change.
- It already broke out once. A second trip through the same line is a re-test of old resistance, not a fresh breakout.
Two things we do not do. We do not draw sloping necklines: price has to clear every high the pattern made, so the line sits at the highest of them. And we do not call it early. A right shoulder that has not finished is a guess, not a pattern.
The four levels
Every inverse head and shoulders in the letter is published with the same four numbers.
- Line. The neckline, horizontal, at the higher of the two reaction highs.
- Trigger. A daily close at least half an average true range (10-day) above the line. A fixed 3% treats a utility and a biotech the same; half an ATR scales with how the stock moves.
- Stop. Under the low of the last day that traded entirely inside the pattern before the first close over the line. That is Peter Brandt's Last Day Rule as Aksel Kibar applies it. The day does not exist until the breakout happens, so a name that is still approaching shows no stop.
- Target. The measured move: the depth of the head below the neckline, added to the neckline. The shaded band on each chart is 80 to 100 percent of that move.
There is a fifth number that matters as much: negation. A close under the right shoulder low ends the setup, whether or not it ever triggered.
A real one: Kohl's, October 2026
This is the block paid members saw on Monday, October 12, built from Friday's close. Left shoulder in late January at 16.42, head in May at 11.22, right shoulder in September at 16.21, neckline through the February and August highs at 20.41.
The head is 45% below the neckline, which is why the target sits far above the line. The daily chart is where the entry gets timed; the stop at 19.11 is the low of the last full day inside the pattern.
Whether KSS confirms is not the point of this page. The point is that every name in the letter is measured exactly this way, the same night, with the same rule, and the list remembers what it said: a confirmation, a target hit or a negation is reported the night it happens.
Where the rule comes from
Edwards and Magee described the pattern in 1948. Bulkowski measured it: in his sample of 3,197 head-and-shoulders bottoms in bull markets, 71% reached the measured target, the break-even failure rate was 11%, and 65% threw back to the neckline after the breakout (source). Brandt added the Last Day Rule for the stop and the discipline of waiting for the close. Kibar runs the same discipline on global stocks weekly. The full list of rules, with each author credited, is on the How the scan works page.
Questions
Is an inverse head and shoulders bullish?
Yes, when it forms after a decline and breaks the neckline on a closing basis. Inside an uptrend it is a continuation pattern and still bullish, but the measured target is less reliable.
How is this different from a double bottom?
A double bottom has two lows and no head. The levels are measured the same way; the double bottom page has that rule.
Daily or weekly chart?
Weekly to find it, daily to time the entry. A pattern that only exists on the daily chart is too small to carry a measured move.
How often does it reach the target?
Bulkowski's figure is 71% in bull markets, with an 11% break-even failure rate. Ours will be published on the weekly recap once there is a year of them.
Can I see tonight's list?
The full list is for paid members, $10 a month. The free Sunday recap shows what fired, what reached its target and what was negated during the week, and the three names closest to a breakout.