Neckline

The support or resistance line connecting the reaction points of a head-and-shoulders or double top/bottom pattern, whose break confirms the pattern and triggers the expected move.

The neckline is the line drawn across the intervening reaction points of a reversal pattern. In a head-and-shoulders top it connects the two troughs between the left shoulder, head, and right shoulder; in an inverse head-and-shoulders it connects the two peaks. In double tops and bottoms it runs through the reaction point between the two extremes. The neckline serves as the pattern's decisive support (in topping patterns) or resistance (in bottoming patterns).

The pattern is not considered complete or actionable until price closes through the neckline — that break is both the confirmation and the entry trigger. The conventional price target is found by measuring the height from the head (or the pattern's extreme) to the neckline and projecting that distance from the breakout point. The neckline's slope matters: a downward-sloping neckline on a head-and-shoulders top is read as more bearish. After a break, price frequently retests the neckline from the other side, which then acts as reversed support or resistance.

The neckline break is more reliable when it occurs on rising volume and the level holds on the retest; breaks on weak volume often fail and snap back into the pattern. Like all pattern lines, exactly where the neckline is drawn carries some subjectivity, and the measured-move target is a guideline rather than a guarantee. It is most dependable when the pattern is well-formed, the break is decisive, and other evidence — a momentum divergence into the head, or a broken trend — supports the reversal.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.