This article introduces the “On Neck Line” which is a bearish continuation pattern.
ON NECK LINE
The On Neck Line pattern is almost a meeting lines pattern, but the critical term is “almost.” The On Neck Line pattern does not reach the previous day’s close but instead it only reaches the previous day’s low. It is important to understand the distinction because both candlestick patterns have very different meanings and can predict different outcomes. While the On Neck Line pattern is a rare pattern, it is still necessary to understand.
Criteria for the On Neck Line Pattern
- A long black (or red) candle forms in a downtrend.
- The following day gaps down from the previous day’s close. It is important to note however that the body is typically smaller than the body seen in the meeting lines pattern.
- The second day closes at the low of the previous day.
Pattern Psychology for the On Neck Line Candlestick Pattern
After the market continues to move in a downward direction a long black (or red) candle enhances this downtrend. The following day opens lower, with a small gap down, but the trend is halted by a move back up to the previous day’s low. The buyers in this upward move are typically uncomfortable considering there was no additional strength in the upward movement. Sellers will typically take a step back the following day to continue the downtrend.
Candlestick signals identify where money is flowing in and out of stocks/sectors. Being able to identify and understand the investor psychology that creates the candlestick signals produces a huge advantage. It allows an investor to participate in stock investments that have an extremely high probability of moving in the right direction.
The average investor does not have to be dependent on the investment professional when utilizing candlestick patterns. Professional recommendations are not always in your best interest at the forefront. Whether totally unfamiliar with investment concepts or very sophisticated in investment experience, the Japanese Candlestick trading formations are easily utilized. The signals and patterns are easy to see and their interpretations are reliable.
Please continue to learn how to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets.