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On Neck Pattern Definition
The on neck pattern refers to the situation when a bullish candle follows the bearish candle, and the close price of the former is quite close to the close price of the latter. This two-way candlestick structure exhibits a bearish continuation approach.
A Little More on What is On Neck Pattern
The on neck pattern is the result of a downtrend falling within the range of an uptrend. It takes place when a long bearish candle is followed by a short bullish candle that is unable to go beyond the close of the black candle. The short bullish candle can be in many forms such as rickshaw man or doji. However, there must not be any real body going beyond the close of the previous candle.
The chart displays bulls trying to reunite that ultimately frizzles instead of succeeding in a change in trend over a long period of time. When the bullish candle is not able to rise above the previous day’s lows, bears again come in the control, and lower down the prices in the market.
As compared to the in-neck patterns, the on neck pattern is more preferred and reliable. In the in neck pattern, the second candle ends up a bit higher than the close of the first candle. However, there are some researchers that suggest that its results are just a little better than flipping a coin.
On Neck Trader Psychology
For increasing their chances of succeeding, traders can use this on neck approach in combination with other types of technical analysis including technical factors, and chart structures.
The Psychology behind on neck
The security traded is involved in a major downtrend or a significant pullback lying within a major uptrend. There is a little intra day high in the first candle, that inverses in an extensive black body, recording a brand new low. Such activity of weak or low price increases the value of bearish market, and compels weak bulls to move back completely.
There occurs a gap of some ticks on the second candle, and the security gets sold to a brand new low. However, it dips buyers as well as other bulls to establish control before the closing bell, thereby increasing the price off the low in a quick upstick that goes beyond the opening print. This strong price strategy raises the confidence of bullish investors while pushing the complacent bears to analyze positions and be concerned about a reversal.
A restricted amount of bull power crackles out before the close, with the long tick not succeeding to penetrate the real body of the first candle. Bears analyze the diminishing power of bulls, and push the downside in a continuance of the present downtrend. This weak price approach decreases the security to a fresh low either on the third or fourth candle.