Dalal Street Investment Journal - July 09, 2019

24 DALAL STREET INVESTMENT JOURNAL I JULY 8 - 21, 2019 DSIJ. in^

inverted head and shoulders pattern. The left shoulder or head

has the highest volume, with diminished volume on the right

shoulder.

Time frame: The inverted head and shoulder can develop over

virtually any time frame. However, the pattern that takes a

longer time to form is more significant and more likely to

identify a meaningful price reversal.

Breakout: The inverted head and shoulders pattern is not

complete until the neckline is broken. This breakout must occur

in a convincing manner with an expansion in volume.

Pattern Psychology: The inverted head and shoulder

pattern can be formed because the sentiment that was formerly

producing the downtrend is possibly shifting and selling

pressure decreasing. The right shoulder on the chart signals a

possible trend reversal as the sellers cannot push the price

lower. The breakout of neckline is the next clue that the

sentiment has shifted because the price is now also making

higher highs.

Price Target: Measure the distance from the right shoulder to

the neckline and then apply this length upward starting from

the initial breakout point through the neckline. This will be the

first target. To calculate the final target, we have to measure the

distance from the head to the neckline and then apply this

length upward, starting from the initial breakout point through

the neckline.

2. Rounding bottom:

The rounding bottom pattern may form at the end of an

extended downtrend and often indicate a reversal in the long

term price movement. As a stock is trending lower, the rate of

the decline will begin to slow down. This is followed by a range

pattern, which ultimately shifts into a slow gradual increase.

This rise ultimately leads to a bullish move.

Identification Guidelines:

Shape:

• The price must be in a clear long term downtrend

Special Report

Price Target: Calculate the distance between the last upward

leg and then apply this length downward, starting from the

initial breakout point. This will be the first target. To calculate

the final target, we have to measure the distance of largest leg

and then apply this length downward, starting from the initial

breakout point.

BOTTOM REVERSAL

PATTERNS:

1. Inverted Head and

Shoulders:

The inverted head and shoulders also called a ‘Head and

Shoulders Bottom’. The inverted head and shoulders pattern

occurs after an extended downward move. It represents a

possible exhaustion point in the market where possible reversal

may occur.

Identification Guidelines:

Shape:

• The price is in a clear downtrend. It reaches a trough of the

current rally and starts rising. This forms the left shoulder

in the pattern.

• The price completes a rise and declines again to an even

lower trough. However, the buyers take control and push

the price higher towards the previous swing high. This

forms the head in the pattern.

• The sellers make a final attempt to push prices lower, but it

fails to break below the previous low and then the buyers

take control and push the price toward the neckline. This

forms the right shoulder in the pattern.

• The neckline is formed by connecting the high prices

registered between the left shoulder, head and the right

shoulder. The neckline may not be perfectly horizontal and

may be upward or downward sloping.

Volume: The volume represents another clue to the validity of