DEFINITION of 'On Neck Pattern'

The on neck pattern occurs when a long bearish candle is followed by a short bullish candle that fails to close above the prior candle’s close and represents a bearish continuation pattern.

BREAKING DOWN 'On Neck Pattern'

The on neck pattern occurs during a downtrend when a bearish candle with a long real body is proceeded by a small bullish candle that fails to rise past the black candle’s close. The small bullish candle could take any number of forms, such as a Doji or Rickshaw Man, but it must not have a real body that rises above the prior candle’s close.

The chart pattern shows bulls attempting a rally that ends up fizzling out rather than succeeding in a long-term trend change. After the bulls fail to break out from the prior day’s lows, the bears regain control over the market and send prices lower in response.

The on neck pattern is considered to be more reliable than the related in neck pattern – where the second candle closes slightly higher than the first candle’s close – but some studies have shown that it still performs only slightly better than a coin flip.

Traders should use the on neck pattern in conjunction with other forms of technical analysis – such as chart patterns or technical indicators – to maximize their odds of success.

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