What is a Neckline in Chart Patterns?
Neckline
Forex Trading Glossary
Quick Answer: The neckline connects swing points in reversal patterns; a break and retest often confirm head-and-shoulders and double top or bottom setups.
What is a Neckline in Chart Patterns?
The neckline is the support or resistance level connecting swing points in reversal patterns such as head-and-shoulders or double tops/bottoms. A clean break of the neckline confirms the pattern.
Identifying the Neckline
- Clear anchor points: Use the swing lows in a topping pattern or swing highs in a basing pattern.
- Slope awareness: Necklines can tilt; a rising neckline in a head-and-shoulders pattern weakens the signal.
- Volume tells: Expect participation to increase on the break for a higher probability follow-through.
Retest Matters
Many traders wait for price to break and retest the neckline, turning old support into resistance (or vice versa) before committing capital.
Trading Neckline Breaks
- Measure the height of the pattern to project targets from the neckline.
- Place stops above/below the neckline depending on the direction of the break.
- Look for confluence with moving averages or triangles for extra confirmation.
- Scale out as price reaches intermediate support or resistance levels.
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