This week’s article introduces the “In Neck Line” which is a bearish continuation pattern.
IN NECK LINE
Description
The in neck line pattern is almost a meeting lines pattern. It has the same description as the on neck line pattern except that it closes at or slightly above the previous day’s close. Confirmation is suggested for the in neck line pattern, and when it appears, it indicates some short covering but not a change in trend direction.
Criteria for In Neck Line Pattern
- A long black (or red) candle forms in a downtrend
- The following day gaps down from the previous day’s close, but the body is usually smaller than one seen in the meeting lines pattern.
- The second day closes at the close or just slightly above the close of the previous day.
Pattern Psychology
This is the same scenario as the on neck line pattern. After the market is moving 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 movement tend to be uncomfortable since there was not more strength in the upward movement. The sellers typically step back the following day to continue the downtrend.
One of the biggest misconceptions of investors is that prices move based upon fundamental reasons when in fact prices move based upon the “perception” of fundamental reasons. The Japanese Rice traders discovered this many centuries ago. Why do prices go down when good news is announced? The answer is that the anticipation of that good news was already built into the stock price.
The investment psychology incorporated into candlestick signals makes it easier to understand what is going on in an investor’s mind. The signals were created through hundreds of years of visual analysis and interpretation by successful Japanese Rice traders.
Throughout his investment career, Stephen Bigalow has directed his investment acumen towards developing improved methods for extracting profits from the investment markets. His research, encompassing all fundamental and technical methods, resulted in verifying that Candlestick analysis was superior to any other method.
Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.
Please continue to learn how to identify each different candlestick trading pattern as well as what that pattern indicates is occurring in the markets.
