Shetland sheepdogs, known as Shelties, were originally bred on the Shetland Islands from Scottish border collies. They were bred not only to herd cattle and other livestock, but also to guard the farm and livestock from intruders and predators. Because of this, they make great guard dogs but may have the natural instinct to bark at everything--even your neighbors. To break this habit requires exercise and some simple training techniques.
Exercise your Sheltie. Depending on his age, your Sheltie may require up to two hours of full-blown running daily with a minimum of 45 minutes. An unexercised herding dog is almost impossible to manage. Mental stimulation is important as well, so implement training games into your activities and make him earn his food; try hiding it in the house, tossing it in the yard for hunting or stuffing it in a toy.
Teach a "no bark" command during play. Entice your dog to bark and then say "no bark" when she has finished barking. Reward with praise and a treat. Repeat until she can stop barking on command during games.
Prepare a quiet area for your Sheltie to relax when she is overstimulated. This could be a crate or quiet bedroom or bathroom at the back of the house. Add a bed and toys to make the room comfortable. Play a radio or television for white noise and add a DAP diffuser, which releases calming pheremones. Get your Sheltie used to spending relaxing time there.
Tell your dog "no bark" when he is barking in his guarding area. If he stops, reward with a big treat and lots of praise. If he doesn't, take him to his quiet room with a short leash that he should wear at all times during training when you are home. Let him out of the room when he calms down. Don't talk to him or scold him when you remove him from the room. This is reinforcing and will cause the behavior to continue.
Repeat each time your dog barks. If you want your dog to continue barking, don't give the command. Otherwise, remove her each time the command is ignored and reward her when it isn't.