Neckline

DEFINITION of 'Neckline'

A level of support or resistance found on a head and shoulders pattern that is used by traders to determine strategic areas to place orders. Each peak of a regular head and shoulders pattern falls toward a support level, also known as a neckline, before it rises to create the next peak. A move below the neckline (in the case of a head and shoulders top) is used by traders as a signal of a reversal of the current uptrend.

Neckline

BREAKING DOWN 'Neckline'

It is possible to see the slope of a neckline be drawn at a slight angle rather than horizontal like the one shown in the image above. However, regardless of its slope, a move below the neckline of a regular head and shoulders pattern is always used as a signal of a move lower.

In the case of an inverse head and shoulders, the neckline is found as a level of resistance that has prevented the price from heading higher. A move beyond the neckline in this case would be used to signal the start of an uptrend.

RELATED TERMS
  1. Inverse Head And Shoulders

    A chart pattern used in technical analysis to predict the reversal ...
  2. Throwback

    A price move back toward the entry level of a security that has ...
  3. Descending Tops

    A pattern in charts where each peak in price is lower then the ...
  4. Diamond Top Formation

    A technical analysis reversal pattern that is used to signal ...
  5. Triple Bottom

    A pattern used in technical analysis to predict the reversal ...
  6. Profit Target

    A predetermined point at which an investor will exit a trade ...
Related Articles
  1. Chart Advisor

    Stocks Breaking Below Head and Shoulders Patterns

    The head and shoulders is a classic topping pattern. These 4 stocks are sporting the pattern, which can indicate how far their prices could drop.
  2. Chart Advisor

    Will ACS Fall And Break Its Neckline?

    The head and shoulders pattern that has been forming on the chart of ACS may be suggesting that the stock is getting ready to make a move lower.
  3. Chart Advisor

    International Business Machines

    For today's chart we have chosen to take a look at IBM because it is quickly approaching the neckline of a well-formed head and shoulders pattern. As you know, this type of pattern is often used ...
  4. Chart Advisor

    Head And Shoulders Pattern Signals A Move Lower

    These four stocks are very close to completing head and shoulder patterns; bulls should tread carefully and bears may spot an opportunity shortly.
  5. Chart Advisor

    J. C. Penney Company

    On May 16, we mentioned that JC Penny Corporation (NYSE:JCP) broke below the neckline of a head and shoulders pattern and that it looked like the uptrend was becoming exhausted. We noted that ...
  6. Chart Advisor

    J C Penney Corporation

    For today's chart we've chosen to take a look at JC Penny Corporation (NYSE:JCP) because it recently broke below the neckline of a head and shoulders pattern. This bearish pattern is used by ...
  7. Chart Advisor

    Lennar Corp

    On June 28, we mentioned that Lennar Corp. (NYSE:LEN) broke below the neckline of a well-formed head and shoulders pattern. We noted that the homebuilder companies were struggling and that the ...
  8. Chart Advisor

    Baker Hughes Inc

    For today's chart we've chosen to take a look at Baker Hughes Inc (NYSE:BHI) because it is nearing the neckline of a broken head and shoulders pattern. As you can see from the chart below, the ...
  9. Stock Analysis

    The 5 Most Important Chart Patterns For ETF Traders

    Chart patterns are a very useful tool because they occur regularly—providing you with lots of trade candidates—and also provide everything you need to trade. When you spot an ETF chart pattern, ...
  10. Chart Advisor

    Is Natural Gas About to Tank?

    Despite a recent bounce in the price of some commodities, traders should remain cautious because spot prices are nearing levels of long-term resistance.
RELATED FAQS
  1. A head and shoulders top formation chart: I. is a bearish chart II ...

    The correct answer is d. A head and shoulders chart, top formation, is a chart of a stock’s movement that resembles the outline ... Read Answer >>
  2. Where do I place my target when the price of a stock breaks out of a technical chart ...

    Technical chart patterns such as ascending triangles, head and shoulders and double bottoms have rapidly grown in popularity ... Read Answer >>
  3. How are Multiple Tops patterns interpreted by analysts and traders?

    Understand how the multiple tops chart pattern is interpreted by traders and analysts and what makes it such a powerful reversal ... Read Answer >>
  4. How effective is creating trade entries after spotting a Multiple Tops pattern?

    Understand the basics of trading based on a multiple tops chart pattern, and learn what elements should be of primary focus ... Read Answer >>
  5. How effective are double tops in spotting a change in the overall trend?

    Learn about the double top price chart pattern, a commonly appearing indicator used to establish resistance levels and possible ... Read Answer >>
  6. How do I implement a forex strategy when spotting a Multiple Tops pattern?

    Understand how to use a multiple tops chart pattern to establish a profitable forex trading strategy, including the optimal ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center