The head and shoulders bottom is the inverse of the H&S Top. In the chart below, after a period, the downward trend reaches a climax, which is followed by a rally that tends to carry the share back approximately to the neckline. After a decline below the previous low followed by a rally, the head is formed. This is followed by the third decline which fails to reach the previous low. The advance from this point continues across the neckline and constitutes the breakthrough.

The main difference between this and the Head and Shoulders Top is in the volume pattern associated with the share price movements.

The volume should increase with the increase in the price from the bottom of the head and then it should start increasing even more on the rally which is followed by the right shoulder. If the neckline is broken but volume is low, you should be skeptical about the validity of the formation.

As a major reversal pattern, the head and shoulders bottom forms after a downtrend, and its completion marks a change in trend. The pattern contains three troughs in successive manner with the two outside troughs namely the right and the shoulder being lower in height than the middle trough (head) which is the deepest. Ideally, the two shoulders i.e. the right and the left shoulder should be equal in height and width. The reaction highs in the middle of the pattern can be connected to form resistance, or a neckline.