when the price breaks below the neckline of a topping pattern it means the prior uptrend is likely over and a downtrend is underway when the price breaks above the neckline of an inverse pattern it means the prior downtrend is likely over and an uptrend is underway 
the neckline is a straight line that connects the lows top or highs inverse and is extended out to the right after the head and shoulders form their third peak top if the price drops below the neckline then the pattern is considered complete and a further downside move is expected the neckline s slope may sometimes need to be drawn at an angle rather than horizontal this is because the reaction lows or highs may not always be equal and therefore the line will take on a slope when connecting them if the neckline is severely sloped higher or lower then it is less useful for trading and analytical purposes often the head and shoulders pattern is used in conjunction with other forms of technical analysis that serve as confirmation including other chart patterns or technical indicators for example if the relative strength index rsi or moving average convergence divergence macd indicator was showing bearish divergence heading into the head and shoulders pattern some traders would view that as added confirmation that the price is more likely to head lower after the downside neckline breakout head and shoulders patterna head and shoulders pattern form after an uptrend and is composed of a peak a retracement a higher second peak a retracement a lower third peak and a drop below the neckline some traders enter short or exit long positions when the price drops below the neckline for those entering short a stop loss is often placed above a recent swing high or above the high of the third peak the estimated downside move for the head and shoulders is the height of the pattern which is the difference between the prices of the second peak to the lowest low of the two retracements subtracted from the neckline breakout point this is called the price target there are no guarantees the price will reach that level or that it will stop falling at that level it is just an estimate the same concepts apply to an inverse head and shoulders except in reverse the pattern forms after a downtrend and is composed of a low a move higher a lower low a move up a third higher low and then a rally above the neckline some traders enter long positions or exit short positions when the price rises above the neckline for those entering longs a stop loss is often placed below a recent swing low or below the low of the third low the height of the pattern is added to the neckline breakout point to provide an upside target example of how to use a necklinea head and shoulders pattern is formed in the gbp usd which is the currency exchange rate between the british pound and the u s dollar the head and shoulders pattern is formed by a first peak a second higher peak and then a third lower peak with retracements in between the neckline connects the lows of the retracements and is extended out to the right image by sabrina jiang investopedia 2021following the third peak the price breaks below the neckline signaling further downside may be likely the height of the pattern is subtracted from the neckline breakout point to provide an estimated price target for the move down 