An In Neck Candle Pattern is a candlestick chart pattern which signals a potential continuation in the market. In this article we will show you how to identify it in the right market condition.
The In Neck Candle Pattern is a Bearish candle pattern which signals a potential continuation when forming in a downtrend.
In Neck Candle Pattern Criteria:
- The first candle of this two candlestick pattern is a red (bearish) candle with a strong real body.
- The candle forms in a down-trend.
- The second candle’s price opens below the prior session’s low price (that is, below the low of the lower shadow). However, by the end of that candle’s session, the market closes slightly into the prior day’s body.
- The second candle is a green (bullish) candle with a small real body.
- The pattern looks like a failed Piercing Pattern. To read more about that pattern, have a look at this article: Piercing Candle Pattern Explained.
- When the price moves under the second candlestick low, that can be a signal of a continuation of the down-trend and a potential sell signal.
- This pattern is almost exactly the same as the On Neck Candle Pattern with just a slight difference with the second candle’s movement into the first candle’s range. To see the difference read this article: On Neck Candle Pattern.
Quick Reference Guide – Candlestick Basics. If you need a reminder of what candlesticks are have a look at our free PDF – Candlesticks Explained.
The criteria and examples above are just the technical definitions of this pattern. However patterns are only useful with context and with real chart examples.
No pattern will ever exactly match the criteria and in order to be a useful signal must occur in the correct place in a trend. Let’s start by looking at the the classification table for this pattern:
In Neck Candle Pattern Classification Table
|Number of Candles In Pattern||2|
|Market Conditions: Range, Down-trend, Up-trend||Down-trend, Ranging|
|Position: Top, Bottom, Range||Range|
What Price Action Does The In Neck Candle Pattern Represent?
All candlestick patterns are formed by price action. But the popular ones represent price action that may have significance in signalling the direction of the market.
The In Neck Candle Pattern consists of an initial large bearish candle that forms in a down-trend. However, strong candles in the direction of a prevailing trend can often be followed by exhaustion of the trend and a reversal (or a pause at least).
Before we can see the initial bearish candle as a continuation of the trend, we need some confirmation.
The second candle opens below the low of the first candle (gaps down). This starts off as a positive downward signal, but then starts to move up.
This could be the start of a reversal pattern but the move fails and the second candle’s real body fails to break significantly into the first candle’s real body with only a slight intrusion.
This failure to reverse the bearish momentum is a potential signal that the bears are still dominant that a continuation of the trend down will occur. When the price moves below the low of the second candle then it could be a signal to sell.
In Neck Candle Pattern With Confirmation
In this US30 market example below we can see that the market was in a downtrend. The market moved towards round level resistance and formed an In Neck Candle Pattern.
The market then broke below the bottom of the In Neck Pattern and also broke the round level resistance. A short consolidation at the resistance didn’t last long before a continuation of the downtrend took the market lower.
In What Market Conditions Does In Neck Candle Patterns Become A Signal?
To recap, the In Neck Candle Pattern is seen as a bearish continuation pattern when it forms in an existing down-trend and then the market moves below the second candle.
In Neck Candle Pattern In A Down-Trending Market
A down-trending market is one where the price action generally moves down over time and is characterized by lower lows and lower highs.
An In Neck Candle Pattern is generally seen as a most valid in a down-trend.
In this US30 market example below the market was in a downtrend. A strong red candle was followed by a failed move up in the second candle and formed a good example of an In Neck Candle Pattern.
The market then continued the downward trend and moved lower.
In Neck Candle Pattern In A Ranging Market
A ranging market is one where the price action moves up and down between two sets of support and resistance. This is also known as a sideways, balancing or horizontal market. In essence the price action is struggling to break out of the range decisively either on the upside or downside.
Although not generally a strong signal in a ranging market, this pattern, when forming in the downward leg of a ranging market can be seen as a signal that the market will continue to the bottom of the prevailing range.
As you can see in this example of the US30 market the price action had formed a range of support and resistance. In one of the reversals from the resistance (down leg), an In Neck Candle Pattern formed which was a good indication of the continuation of the downward trend to the bottom of the range.
Candle Pattern MT4 Indicator Downloads
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Important Information About Candlestick Patterns
Interpretation Of Candle Patterns:
It is important to note that these patterns were originally identified on the daily timeframes of index charts, which is still where they are the most useful. However, this does not mean that they cannot be used for other markets or time frames.
No signal is perfect and should never be used as such. Any patterns that you identify only signals a potential move based on the fact that history repeats itself and forms regular patterns in similar situations.
But past performance is no guarantee of future results! So always treat these patterns with care and think of these guidelines when using them.
Best practice guide for trading of candle patterns:
- No pattern is ever perfect. Be aware that patterns will form slightly differently each time and in different markets.
- Use them as consistently as possible. Even though you will never find patterns exactly the same, you should always implement a consistent ruleset when identifying and using patterns.
- It is never a guarantee, only an indication.
- Make sure you are using it in the right context. For example if it is a continuation pattern then don’t use it to trade reversals!
- Use multiple signals (confirmations) to have more confidence in your trading.
Related Candle Patterns
On Neck Candle Pattern
Piercing Candle Pattern
Bearish Thrusting Pattern Candle Pattern
Bullish Counterattack Lines Candle Pattern
More About Candlestick Patterns
If you are interested in reading more about candlestick patterns you can find our articles on this topic here: https://www.nothardtrading.com/category/candle-patterns/ or choose a pattern below to read more.