Candlestick patterns play a key role in technical analysis. A candlestick is a chart used to show movement of prices of a specific security. It is depicted as a candle’s body and its shadows, and includes elements such as the opening and close price, the highest and lowest price trading for the particular timeframe.
There are several candlestick patterns, and among them is the on neck candlestick pattern. An on neck pattern is a continuation pattern. There are candlestick patterns that depict both reversal and continuation of price trends.
A continuation pattern is one which confirms the direction of the market while a reversal shows that there is a change in the direction. Candles that confirm or continue a specific trend in the market are called trending ones, while the opposite ones are called non-trending.
The on neck candlestick is a continuation pattern that is also bearish. In an on neck pattern, the first candle is bearish and the second one is bullish. The first candle’s body is long while the second one is shorter. The second candle closes near the first one or close to the first candle. The pattern gets its name because at the point where the closing prices of the two are nearly the same or same, it forms a horizontal line which looks like a neck or a neckline.
– So, first look for a downward trend that is in progress, and then look for the two candles as described above.
– Check for the closing prices of the two candles.
– The second one should not be higher than the first candle’s low. The prices at close should be equal or almost equal.
– For confirmation, keep an eye on the third day’s candle. The third one should be bearish and continue the downward trend.
What does the on neck mean?
The on neck candlestick means that the market is in the grip of the bears and the domination of the bears will continue.
On neck vs in neck pattern
– There is yet another pattern called the in neck pattern which is also a two-line continuation candlestick pattern. This is also a bearish pattern where the first candle is a bearish one in a downtrend.
– The second candle is a bullish one where the closing price is a little higher than the previous candle’s closing price. It is in the closing price level that the difference between in neck pattern and on neck candlestick pattern lies.
– The in neck pattern shows that the direction of the trend continues and stays bearish but it is not as strong or severe as the on neck candlestick.
– Because the two patterns are so similar, you would need to examine the patterns closely before you identify which one is getting formed.
How different is an on neck pattern from a thrusting pattern?
– A thrusting pattern is seen as both a continuation pattern that’s bearish and a reversal that signifies a bullish trend. It is similar to the on neck candlestick pattern or an in neck pattern because of the two candles involved, where the first one is tall and bearish, while the second candle is bullish and short.
– The difference between the thrusting pattern and in and on neck patterns lies in the closing point. In the thrusting pattern, the second candle closes above the first candle’s closing but it closes at the middle point or near the middle of the first candle’s body.
– However, a thrusting pattern doesn’t produce a clear result and sometimes shows a reversal and at other times continues the downtrend.
– A trader should be careful while following this pattern as it is not a strong pattern that confirms the trend. It is ideal to look for other signals that are indicative of a bearish trend before trading. A trader should look carefully and take time to identify an on neck pattern to trade because of the close similarities with the other two candlestick patterns.
In summation
An on neck candlestick pattern suggests that a downtrend will continue. It is depicted by two candles, the first one being tall and bearish with the second candle being shorter and bullish. However, the closing price of the second candlestick should be at the same level as the closing of the first one or almost there. It is ideal that a trader watches the third candlestick to confirm the bearish trend.
An on neck pattern is similar to the in neck and the thrusting candlestick patterns. Although the in neck pattern is also an indication of a downtrend, it may not be as strong as the on neck. The same can be said of the thrusting pattern which often throws up mixed signs. In all, it’s the on neck candlestick that shows the best confirmation of a continuing downward trend. Use this in association with other technical analysis patterns and charts for reliability.
