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. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  3. Triple Top

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

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

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

    A technical analysis reversal pattern that is used to signal ...
Related Articles
  1. Trading

    How To Trade The Head-And-Shoulders Pattern

    The head-and-shoulders chart pattern is easy to spot, and its entry levels, stop levels and price targets make it simple for traders to use.
  2. Trading

    How To Trade The Head And Shoulders Pattern

    The head-and-shoulders chart pattern is a popular and easy-to-spot pattern - once a trader is aware of what they are watching for.
  3. Investing

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  4. Investing

    Introduction To Technical Analysis Price Patterns

    To "find your game" in technical analysis, you need to be able to recognize reversals and continuations as they form.
  5. Trading

    Most Commonly Used Forex Chart Patterns

    These chart patterns provide entries, stops and profit targets that can be easily seen.
  6. Investing

    Tales From The Trenches: Don't Count On Luck

    ChartAdvisor experts illustrate why it's important to stick to your strategy.
  7. Trading

    Introducing The Bearish Diamond Formation

    Profit-taking opportunities abound using this lesser-known pattern. Find out how.
  8. Trading

    Currency Opportunities: Present and Future (UUP, FXE)

    Here are opportunities in major currency ETFs, based on long-term trends, breakouts and new trends.
RELATED FAQS
  1. What is a common price target when identifying a double top?

    Learn about a common bear trading strategy once a double top pattern is identified, and discover how conservative and aggressive ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. What are common trading strategies when identifying a Diamond Top Formation Pattern?

    Learn how traders identify diamond top formations and what the pattern signifies. Then, develop a profitable trading strategy ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center