Understanding the On Neck

What is the On Neck?

The On Neck pattern is a bearish reversal candlestick pattern that occurs at the end of an uptrend. It consists of a long white candlestick followed by a black candlestick that closes near the previous white candle's closing price. The pattern suggests a potential shift in momentum from bullish to bearish.

How is the On Neck Identified?

The On Neck pattern is identified by:

1. Long White Candle: A strong bullish candlestick with a significant body, indicating ongoing buying pressure.
2. Black Candle: A bearish candlestick that opens below the previous candle's close but closes near that price, showing selling pressure starting to emerge.
3. Close Proximity: The close of the black candle is near or just below the close of the white candle, indicating a potential reversal.

When to Use the On Neck

The On Neck pattern is used to:

• Predict Reversals: Identify potential bearish reversals at the end of an uptrend.
• Assess Selling Pressure: Observe the start of selling pressure after a strong uptrend.
• Manage Risk: Set stop-loss orders or adjust trading strategies based on the pattern’s indication.

Formula Example

To identify the On Neck pattern:

1. Identify the White Candle: Look for a strong bullish candlestick.
2. Check the Black Candle: Ensure it opens below the close of the white candle and closes near the same level.
3. Confirm the Reversal: Verify that the pattern occurs at the end of an uptrend.

For example:

• Bullish Scenario: A white candlestick followed by a black candlestick that closes near the white candle’s close could indicate the end of the bullish trend, signaling a potential bearish reversal.

Parameters

The parameters for identifying the On 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 On Neck pattern in the last N candles.

Conclusion

The On Neck candlestick pattern helps traders identify potential bearish reversals after an uptrend. By focusing on the pattern's formation and its proximity to the previous candle's close, it provides insights into potential market shifts.