Understanding the In Neck

What is the In Neck?

The In Neck pattern is a bearish continuation pattern that forms when a bearish candlestick opens within the body of the previous bullish candlestick but does not close below the previous candle's low. It indicates that while there is some selling pressure, the market is still predominantly bullish. It often precedes a continuation of the current uptrend.

How is the In Neck Identified?

The In Neck pattern is identified by:

1. Bullish Candle: The first candle is a large bullish candlestick.
2. Bearish Candle Opening: The second candle is a bearish candlestick that opens within the body of the previous bullish candle.
3. Close Above Previous Low: The bearish candle's close is above the low of the previous bullish candle.

When to Use the In Neck

The In Neck pattern is used to:

• Confirm Continuation: When seen in an uptrend, it suggests that the trend is likely to continue.
• Avoid False Signals: Use alongside other indicators to confirm the bullish continuation.

Formula Example

To identify the In Neck pattern:

1. Check Candle Open and Close Prices:
   • Condition: The bearish candle opens within the body of the previous bullish candle and closes above the previous candle’s low.

For example:

• First Candle: A bullish candle with Open < Close.
• Second Candle: A bearish candle that opens within the range of the first candle and closes above the first candle’s low.

Parameters

The parameters for identifying the In Neck pattern include:

• Data: Defines the type of data to use for the pattern.

  • Value: ohlc
  • Description: The pattern uses Open, High, Low, and Close prices.

• Previous N Candles: Number of preceding candles to check.

  • Default Value: 1
  • Min Value: 1
  • Max Value: 300
  • Description: Checks for the In Neck pattern in the last N candles.

Conclusion

The In Neck candlestick pattern is useful for identifying potential bullish continuation in an uptrend. It is characterized by a bearish candle opening within the body of a previous bullish candle and closing above its low. Traders should use this pattern in conjunction with other technical indicators to validate the continuation of the uptrend.