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.



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.

  1. Uptrend

    Describes the price movement of a financial asset when the overall ...
  2. Downtrend

    Describes the price movement of a financial asset when the overall ...
  3. Resistance (Resistance Level)

    A chart point or range that caps an increase in the level of ...
  4. Reversal

    A change in the direction of a price trend. On a price chart, ...
  5. Support (Support Level)

    The price level which, historically, a stock has had difficulty ...
  6. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
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