BPCL: Inverse Head and Shoulder reversal

8 gen 2023

Inverse Head and Shoulders Continuation:

This pattern forms in an extensive upside rally. It consists of a left shoulder, a head, and a right shoulder.

At the end of the left shoulder, a minor correction takes place on the upside which happens on the low volumes comparatively the starting of the left shoulder. After this again a down move can be seen on large volumes forming a head having its bottom is below the left shoulder following an upmove correction on lower volumes & completing the head.

The completion of the head must be above the top of the left shoulder. If the prices rise above the top of the left shoulder then too this pattern remains intact. In the end, the right shoulder is formed usually on smaller volumes comparatively the previous two rallies.


Now if you connect the tops of the left shoulder, head & the right shoulder there will be a formation of the ‘Neckline‘. This line will act as a decision line. If the prices break this neckline & give closing above the line, this will be the confirmation of the breakout of the Inverse head and shoulders pattern.

However, it has been noticed that after breaking of the neckline the prices again attracted towards this neckline. We say this phenomenon as a retest of the neckline which will add some more confidence while trading this pattern.

After retesting if the prices again start rising, this will be the final confirmation of the up move as shown above.

The bookish target of this pattern is taken as the vertical price range from the bottom of the head to the neckline & the bookish Stop loss should be the bottom of the right shoulder. However this stop loss can be big, so it is advised to keep a stop loss of 4-5% of the price range below the neckline.

TRADING STRATEGY:

Buy on cmp add on dips , keeping SL of 320 look for the measured target of 415 and beyond that targets are 443 /500 as per ElliottWave perspective.