On Neck Line

The on neck line candlestick pattern is one of many continuation patterns used by stock traders. Before we explain this pattern and what it means, we first revisit the definition of a continuation pattern. Continuation patterns help stock traders to differentiate between a price action that is in a full reversal and those patterns that are just pausing. They suggest that the market will maintain the current trend and they help the trader to make a decision. Instead of representing a reversal, these patterns represent times of rest and can indicate to the trader that no action is needed.

The on neck line candlestick pattern is bearish in nature and occurs when the market should move lower as the white candlestick’s low is pierced by the next bar. It is almost a meeting lines pattern but this pattern does not reach the previous day’s close and only reaches the previous day’s low.

In order to qualify as this type of candlestick pattern certain conditions must be met. First, the long black candle must form in the downtrend. Second, the following day gaps down from the day’s close, as explained previously, but the body is still typically smaller than the one seen in the meeting lines pattern. Finally, the second day closes at the low of the previous day.

What does the on neck line candlestick pattern indicate is occurring in the markets?

This pattern indicates that the market is and has been moving in a downward trend. The long black candle augments this trend and the following day opens lower. There is a small gap down however the trend is stopped by a move back up to the previous day’s low. The sellers take a step back the following day in order to continue the downtrend and the buyers are comfortable that there wasn’t more strength in the temporary move up.

Japanese Candlesticks are the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals, and you have learned how to read stock charts continue to expand your expertise by learning the various secondary Candlestick Patterns.

After learning the 12 major candlestick patterns, such as the hanging man candle , the bullish engulfing pattern , and the evening star candlestick , investors can then move on to learning about the “secondary signals” such as the three black crows , the three white soldiers , and others.

Combine these with the continuation patterns and your favorite technical analysis indicators, such as the moving average , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds .

Continue to learn about continuation patterns and read about the  three line strike candlestick pattern.