Psychology of Trading On Neck Candlestick Pattern in Forex Trading

What Is The Pattern On The Neck?

When a long real body down candle followed by a smaller real bodied up candle. That gaps down on the open but closes near the prior candle’s close, the on neck candlestick pattern occurs.

The pattern known as a neckline. Because the closing prices of the two candles are the same (or nearly the same), forming a horizontal neckline.

The pattern considered a continuation pattern in theory,. Implying that the price will continue to fall as a result of the pattern. In actuality, this happens just about half of the time. As a result, the pattern frequently implies at least a short-term upward reversal.

Pattern On The Neck Overview:

When a bearish candle with a lengthy true body followed by a smaller bullish candle that fails to finish above the bearish candle’s close. The on neck pattern happens during a decline or a retreat within an uptrend.

The small bullish candle could be a doji, rickshaw man, or any bull candle with a smaller real body than the previous candle, but the two candles’ closing prices should be equal or almost identical.

Bulls attempt a rally that fizzles out on the second candle, unable to push the close above the closing of the previous candle. Theoretically, the price should continue to fall in line with the pattern.

According to Thomas Bulkowski’s Encyclopedia of Candlestick Charts, the price only continues to the downside 56% of the time. The rest of the time, it will operate as an upside reversal pattern.

Overview:

Bulkowski’s research discovered that while prices tended to stay down more often, when they did turn to the upside, the subsequent increase was bigger. As a result, traders may want to look for a move higher after the pattern to indicate an upside reversal. The size of these up moves is slightly larger than the size of drops that follow the pattern.

Traders should combine the on neck pattern with other technical analysis techniques such as chart patterns and technical indicators. This is because the pattern could lead to a move in either direction, thus confirming data could assist indicate which way it will most likely go. Traders might also choose to wait for confirmation candles.

Confirmation candles are candles that move in the same direction as the pattern, either up or down, alerting the trader to the direction in which the price may move further. If the pattern occurs and the price falls below the low of the second candle, this is evidence that the price is moving lower.

Psychology of Trading On Neck Candlestick Pattern:

The security is in a primary downtrend or a significant correction inside a primary uptrend. A long black genuine body displayed by the first candle. Bearish complacency grows as a result of the weak market action, while weakening bulls retreat completely.

On the second candle, the security gaps down and sells off to a new low, but buyers seize control and boost the price back to the preceding close, but not above it. The bulls were unable to drive the price above the previous close, according to the bears.

According to the idea, the bears will seize control of the next few candles, sending the price lower. As previously stated, this only happens roughly half of the time in actuality. As a result, the pattern agitates both bulls and bears, making it effectively a coin flip as to whether prices would rise or fall as a result of the pattern.

Neck Candlestick Pattern
Neck Candlestick Pattern

An Example of Using the On Neck Pattern:

The daily chart below shows two on-neck formations that appeared after pullbacks in an overall uptrend.

In this situation, the price rose in accordance with the pattern. Once the price began to rise in accordance with the pattern, a stop loss might be placed below the pattern to limit risk in the event that the price began to fall again.

In conclusion, A decline is expected to continue with a on neck candlestick pattern. It is represented by two candles, the first of which is towering and bearish, and the second of which is shorter and bullish. The second candlestick’s closing price, on the other hand, should be at or near the same level as the firsts. To confirm the bearish trend, a trader should look at the third candlestick.

The in neck and thrusting candlestick motifs are similar to the on neck pattern. Although the in neck pattern indicates a decrease, it is not as severe as the on neck pattern. The same may be stated for the thrusting pattern, which frequently produces conflicting results. Overall, the on neck candlestick provides the most evidence of a continued downward trend. For maximum dependability, combine this with additional technical analysis patterns and charts.

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