Mastering the On Neck Line and In Neck Line Candlestick Patterns

ON NECK LINE

Description

The On Neck pattern is almost a Meeting Line pattern, but the critical term is almost. The On Neck pattern does not reach the previous day's close; it only reaches the previous day's low. (See Figure 3.5.)

Criteria

• A long black candle forms in a downtrend.
• The next day gaps down from the previous day's close; however, the body is usually smaller than one seen in the Meeting Line pattern.
• The second day closes at the low of the previous day.

Pattern psychology

After a market has been moving in a downward direction, a long black candle enhances the downtrend. The next day opens lower, a small gap down, but the trend is halted by a move back up to the previous day's low. The buyers in this upmove should be uncomfortable that there was not more strength in the upmove. The sellers step back in the next day to continue the downtrend. (See Figure 3.6.)

IN NECK LINE

Description

The In Neck pattern, shown in Figure 3.7, is almost a Meeting Line pattern also. It has the same description as the On Neck pattern except that it closes at or slightly above the previous day's close.

Criteria

• A long black candle forms in a downtrend.
• The next day gaps down from the previous day's close; however, the body is usually smaller than one seen in the Meeting Line 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 pattern. After a market has been moving in a downward direction, a long black candle enhances the downtrend. The next day opens lower, a small gap down, but the trend is halted by a move back up to the previous day's low. The buyers in this upmove should be uncomfortable that there was not more strength in the upmove. The sellers step back in the next day to continue the downtrend. (See Figure 3.8.)