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Definition of 'Neckline'

In finance, a neckline is a support level that a stock price may bounce off of after a decline. The neckline is typically identified as a horizontal line that connects two or more low points in the price chart.

When a stock price breaks below the neckline, it is considered a bearish signal. However, if the price then rebounds and closes above the neckline, it is considered a bullish signal.

The neckline can be used to help traders identify potential entry and exit points for a trade. For example, a trader may look to buy a stock when it breaks above the neckline and sell it when it falls back below the neckline.

It is important to note that the neckline is not a guarantee that the price will reverse. However, it can be a useful tool for technical analysis.

Here are some additional things to keep in mind when using the neckline:

* The neckline should be clearly defined. If the line is too squiggly, it is not as reliable.
* The neckline should be based on at least two or more low points.
* The neckline should be located at a significant support level.
* The neckline should not be used in isolation. It should be used in conjunction with other technical indicators.

The neckline is a versatile technical indicator that can be used to identify potential trading opportunities. However, it is important to use it in conjunction with other indicators and to understand its limitations.

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