Neckline

AAA

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

INVESTOPEDIA EXPLAINS '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. Head And Shoulders Pattern

    A technical analysis term used to describe a chart formation ...
  2. Resistance (Resistance Level)

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

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

    The price level which, historically, a stock has had difficulty ...
  5. Uptrend

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

    Describes the price movement of a financial asset when the overall ...
Related Articles
  1. How To Use Volume To Improve Your Trading
    Options & Futures

    How To Use Volume To Improve Your Trading

  2. How To Trade The Head And Shoulders ...
    Trading Strategies

    How To Trade The Head And Shoulders ...

  3. Where do I place my target when the ...
    Trading Strategies

    Where do I place my target when the ...

  4. Basics Of Technical Analysis
    Trading Strategies

    Basics Of Technical Analysis

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center