As the name implies, this is the reverse of a head and shoulders top, so is upside down, and not as common as the head and shoulders top.
It is formed as the result of three congestion areas. The first congestion creates the first shoulder, the second the head and the third the second or right shoulder. The head is lower than the shoulders, and the neckline is drawn across the tops of the shoulders. The head is generally wholly outside the range of the shoulders.
The head and shoulders bottom signals the end of a down trend and a reversal of that trend, not just a change from trend to trading bracket, but also the beginning of a new bull market trend. This is confirmed by a rally above the neckline. The projected target is the same distance above the neckline as the distance from the low to the neckline.
The relative volume associated with each decline or advance out of each congestion pattern is important, as is the volume from the previous declines. To confirm the formation as a head and shoulders bottom it is a requirement that the volume associated with the head is lower than the previous first shoulder. The rally into the second shoulder and the volume traded in the second shoulder should reflect the lightest volume of all.
an example
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