A Neckline is a technical analysis term used in charting to describe the level of a horizontal line that connects the lows of a head and shoulders pattern. The head and shoulders pattern is a reversal pattern that is considered a bearish signal.The head and shoulders pattern consists of three main parts: the left shoulder, the head, and the right shoulder.The left shoulder and the right shoulder are peaks that are roughly at the same level, with the head being the highest peak in between them. The neckline is a horizontal line that connects the lows of the left shoulder and the right shoulder.When the price of the security breaks below the neckline, it is considered a bearish signal and a sign that the trend may be reversing from an uptrend to a downtrend. This is because the pattern is considered a bearish reversal pattern, and a break below the neckline is a sign that the bulls are losing control of the market.The neckline can also be used to calculate a price target. Once the neckline is broken, the price target is determined by measuring the distance between the head and the neckline and then subtracting that distance from the point where the neckline is broken. This gives an estimate of how far the price may fall.It's important to note that the head and shoulders pattern is a reliable pattern but it's not always correct, and other technical analysis tools such as trendline, support, resistance and indicator analysis should be used to validate the pattern before making a trading decision.
