While scanning today, I noticed a perfect example of an Inverse Head & Shoulders pattern in Harley-Davidson (HOG). I thought this would be a great time to review the elements that make up this pattern. Being that an Inverse Head & Shoulders pattern is an indication of bearish trend reversal, you must first have a downtrend. HOG's downtrend is easy to see on the chart.

Other important elements are the following:

- The volume should decrease at the base of each valley; volume at the base of the left shoulder should be higher than volume at the base of the head, and volume at the base of the head should be higher than volume at the base of the right shoulder.

- Volume should pop on the break of the neckline

- The expected move after the neckline break can be measured by the distance from the head to the middle of the neckline. In the case, the head bottoms out at 58 and the neckline directly above the head sits at approximately 62.50. This equates to a measured move of 4.50.



This move is almost complete, considering the measured move takes HOG to approximately 67.00. I simply saw a great teaching opportunity, and took it. Hope this was not too confusing.

Andy Swan is co-founder and head trader for DaytradeTeam.com. To get all of Andy's day trading, swing trading, and options trading alerts in real time, subscribe to a one-week, all-inclusive trial membership to DaytradeTeam by clicking here.