You can see that the market has been rising steadily, forming a typical head and shoulders top pattern. When the head and shoulders top pattern appears at the top, we connect the two low points in the pattern to form the neckline of the head and shoulders. This neckline is the watershed between bulls and bears that we just talked about, with the area above the neckline being the bullish area and the area below being the bearish area. Only when the price breaks below this neckline does it indicate that the head and shoulders top pattern is established. When the price breaks down through the important bullish support level at the neckline, the market shifts from a bullish trend to a bearish trend. After the breakdown, when the price rebounds near the neckline, the neckline transforms from a support role to a resistance role. Once the price breaks below the important support level of the head and shoulders neckline, as long as the price rebounds and is resisted by this neckline, investors can use this neckline as a basis to enter short positions.
