What is On Neck Candlestick Pattern?
The On Neck pattern occurs when a long-body bearish candle is followed by a smaller full-body bullish candle that gaps down on the open but then ends near the closing price of the previous candle. The pattern is known as a neckline because the closing prices of the two candles are the same, forming a horizontal neckline. The pattern is a continuation pattern, which means that the price will continue to fall after the pattern. In reality, this only happens around half of the time. As a result, the pattern normally indicates at least a short-term upward reversal.
How Do you Recognize the On Neck Candlestick Pattern?
The on-neck candlestick pattern consists of two bars. It is a little and simple candlestick design to recognize. To be considered an on-neck candlestick design, a candlestick pattern must match the following criteria.
- Because the on-neck pattern is a negative continuation pattern, the market must be in decline.
- The first candle must be long and dark.
- The second candle must be little and white.
- The second candle’s closure should correspond to the previous candle’s low. It must not climb above the first candle’s low price.
The on-neck pattern is basic and straightforward, but it must be identified correctly. It is quite similar to the in-neck candlestick pattern, which likewise appears during a slump and anticipates the market’s current trend. However, there is little distinction between the two designs. The second candle of the in-neck design closes slightly higher than the first candle. As a result, when attempting to recognize any of the two candlestick patterns, it is critical to take the time to correctly identify the pattern.
Table of Information on the Neck Candlestick
| Structure | Description |
| Count of candlestick | Two |
| Prediction | The bearish trend is expected to continue. |
| Prior Trend | Bearish Trend |
| Counter Pattern | Downside Tasuki Gap |
Psychology of On Neck Traders
The security is in a primary decline or a significant downturn within a primary uptrend. The first candle has a lengthy, black genuine body. This feeble price movement feeds bearish complacency while causing weakening bulls to retreat completely.
The security gaps down on the second bullish candle and sells down to a new low, but buyers seize control and bring the price to but not above the preceding close. The bears believe the bulls lack the ability to lift the price above the previous closing. According to the idea, the bears will seize control of the next several candles, sending the price lower. As previously said, this only happens around half of the time. As a result, the pattern puts both bears and bulls on edge, making it effectively a coin flip as to whether prices would rise or fall as a result of the pattern.
This is the basic psychology underlying this phenomenon.
On-Neck Candlestick Pattern Accuracy
The pattern on the neck is fairly precise. It is a strong indication that the current bearish trend will continue. It has a 33.8% success rate. However, the profit is relatively restricted. In a risk-reward ratio of 2:1, it has a poor probability of achieving a profit target.
The On-Neck Pattern’s Limitations
Continuation patterns are used to confirm a trend. As a result, it is recommended to utilize it as a trend continuation indicator. As a result, large trades provided by reversal patterns cannot be obtained from indications provided by these patterns. This pattern does not indicate how long the negative trade will last or how much the stock price will fall. A trader should always be aware of this.
Conclusion
The on-neck pattern predicts trend continuation with high accuracy. However, it is unclear how long the bearish trend will last. As a result, a trader must be aware of the nature of this pattern. A trader who trades the on-neck pattern should not expect to make a large profit every time. This pattern’s limitation must be considered.
In the collection of candlestick patterns that anticipate the bearish trend, the on-neck pattern is included. Technically, trend continuation candlestick patterns have a high possibility of success. I also urge that you trade with these candlestick patterns.
Back-test this candlestick thoroughly before trading it on a live account.
