What Is 'In-Neck Pattern'

The in-neck pattern is a two-candle bearish continuation pattern that appears on candlestick charts.

Breaking Down 'In-Neck Pattern'

The in-neck pattern is a continuation pattern with the following characteristics:

  • The market is in a downtrend.
  • The first candle is black with a long real body.
  • The second candle is white with a close near the first candle’s close and an open that's below the first candle’s low. This candle’s real body and shadows can take a variety of different forms, ranging from a hammer to a doji.

This chart pattern shows bulls attempting a rally that loses momentum and fails to reverse the trend. After failing to break out from the first candle’s lows, bears regain control over the market and send prices lower.

The in-neck­ pattern is very similar to the on-neck pattern, where the second candle closes below the first candle’s close. The on-neck pattern is often more reliable than the in-neck pattern but both are accurate to a coin flip. The morning star pattern is a similar candlestick pattern that has much better accuracy in day to day price action.

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

In-Neck Trader Psychology

The security is engaged in an active downtrend. Bears are confident that lower prices will follow while bulls are on the defensive. The first candle opens lower and fails to reverse due to an inadequate supply of buying pressure. Bears pile on and the security ticks lower during the session, with active selling pressure and the forces of gravity controlling weak price action. The candle ends the market day near the intraday low, grinding out a small shadow that indicates a minor bounce rather than buying commitment. Bears are now over-confident while bulls grow more despondent and emotional.

The bulls' caution is justified on the second candle, which opens with a down gap that indicates emotional and one-sided selling pressure. However, the swift decline to a lower level exhausts the available supply of selling pressure, allowing bulls to buy the dip during the session. Their buying power fails to lift the security above the low of the first candle, denying a technical reversal signal. This price action indicates limited buying interest that allows bears to resume control of the ticker tape on the third or fourth candle. dropping the security to a new low. 

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