I have been tracking this potential inverse head and shoulders pattern for the past few days. However, after the volume profile did not quite line up I became skeptical, and even more so after noticing this potential head and shoulders pattern beginning to form.
I wanted to make this post to track both potential formations and their progress. According to stockcharts.com (sources below) "volume plays an important role in the Head and Shoulders Top, it plays a crucial role in the Head and Shoulders Bottom"
iH&S Case: For the left shoulder and formation of the head: "Volume on the decline of the left shoulder is usually pretty heavy and selling pressure quite intense." and "After this low, subsequent volume patterns should be watched carefully to look for expansion during the advances." For the second half of the head and formation of the right shoulder: "The advance from the low of the head should show an increase in volume," "After the reaction high forms the second neckline point, the right shoulder's decline should be accompanied with light volume" and "With light volume on the pullback, indicators like CMF and OBV should remain strong. The most important moment for volume occurs on the advance from the low of the right shoulder. For a breakout to be considered valid, there needs to be an expansion of volume on the advance and during the breakout."
Clearly we can see heavy volume on the decline of the left shoulder("A") and from it's decline towards the head ("B"), and even relatively light volume on the slope towards the second neckline point ("C"). However, this is where I begin to see the divergence in volume trend. We should expect high volume on the advance of the right shoulder, towards point "E", and that is not quite the case. For me to consider the pattern valid, we would need to see a break of the green trend line on STRONG volume. Example from stockcharts.com: i.gyazo.com/7ae05e5e41b99767dc3e21d54d93f6b6.png
H&S Case: "Ideally, but not always, volume during the advance of the left shoulder should be higher than during the advance of the head." As we can see, volume has been on a steady decline since point "C". Confirmation of this pattern will come with a close (4 hour or daily) below the red trend line forming the H&S neckline. Example from stockcharts.com: i.gyazo.com/10b0a9b1434ed7b385a1c13272260c67.png
If I were to take a position on one pattern or the other, I would use the other patterns trend line as the stop loss. At it's current position, if I were to go long I would set stops below $8,100 or $8,000. If I were to go short, I would set stops above $8,900.
These patterns are appearing all over crypto right now, in alt-coin/usd pairs as well as alt/btc pairs (see my post linked below for an older post on ETH/USD). Look around and see which ones you like, or which confirm first (if at all). I will continue to update as this progresses.
*THIS IS NOT TRADING ADVICE*
Comment
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Broke upper trend line on good volume. iH&S looking like the winner.
The complete shoulder and first half of the head were also a descending broadening wedge, which usually has a strong breakout. It appears as though the wedge breakout failed and the action is now creating a large inverted cup.
I was going nuts trying to identify how those perfect waves were being formed and fanned out starting around Feb 6th (I honestly thought it was too mechanical to be natural and started thinking it was market manipulation). Just today found those compressed / fanned out waves to be consistent with an inverted cup and handle pattern. In the case of the inverted cup we may be forming here, this would be a bearish signal. Be careful!
Manifested
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@befunkt, I noticed that broadening wedge as well, and it is actually a similar fractal to what happened on the first decline from our ATH, if you go and look back. I did not see the iC&H though, I will explore that possibility as well.
I also think the sharp dip we just saw to 6k could be completed out with an inverted adam and eve double bottom. So many possibilities.
befunkt
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@Manifested, I see, nice find! On looking back to the ATH I saw a few waves that are very similar to these ones, with a triple top shoulder on the ascending side, and a double or triple top high, etc.
I haven't been in this game long enough to know, but I wonder if those fractal wave patterns are typical of a priceline when it is most volatile, or most overbought/oversold.
Any ideas on that?
Thanks for the posts!
Manifested
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@befunkt, I'm not sure exactly where you are talking about, I see a few places where it could be potentially. Perhaps a picture of your chart could help? That does remind me of something I was reading up on earlier today, since this seems to be a pretty complex formation. Check out there two links and let me know what you think, complex H&S patterns:
thepatternsite.com/chst.html thepatternsite.com/chsb.html
befunkt
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@Manifested, Sorry, so many details, so little time! :)
If you look at my last post, i have a zoomed-in marked up capture of the patterns I'm talking about. Very fractal.
Any case, I saw some similar patterns near the ATH.
I was going nuts trying to identify how those perfect waves were being formed and fanned out starting around Feb 6th (I honestly thought it was too mechanical to be natural and started thinking it was market manipulation). Just today found those compressed / fanned out waves to be consistent with an inverted cup and handle pattern. In the case of the inverted cup we may be forming here, this would be a bearish signal. Be careful!