The On Neck is used in technical analysis to describe a candlestick pattern. The pattern forms when a long real body-down candle is followed by a small real bodied-up candle. It gaps down at the opening and closing near the prior candle’s close.
This pattern is called On Neck because of the two closing prices for the two candles that are the same, or nearly the same. It forms a pattern that is horizontal and can be seen as a neckline.
The on neck pattern happens when a small bullish candle that does not close above the closing of the bearish candle follows a bearish candle with a long real body. It can be during a downtrend or a retreat during an uptrend.
The pattern demonstrates bulls trying to push the close above the close of the previous candle, but their attempt at a rally fizzled out on the second candle.
How to identify the On Neck pattern
To identify an On Neck pattern, look out for the following;
- There must be a downtrend in progress
- There must be a tall (bearish) black candle
- The black candle needs to be followed by a small white (bullish) candle.
- The white candle’s close should be almost exactly similar to the low of the previous candle. It shouldn’t increase past the low price of the black candle
- The close price of the candle should be close to the open price
- On the third day, if the trend continues downward, look for a black candle to verify the On Neck pattern.
- Both a long body and a space between the second to the third days are indicators of strength.
