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The bearish neck lines candlestick pattern is a two stick pattern that occurs during a downtrend. Basically, the first day of the pattern there will be a black candlestick with a long body. On the second day, there will be a white candlestick that opens below the previous day’s low but closes at or near the first day’s low. This white candlestick must usually be very small to meet these criteria. Depending on where the second day closes in relation to the first, bearish neck lines are either called “on neck lines” or “in neck lines”.
Regardless of the exact type of neck lines pattern, it usually indicates a continuation of the current downtrend. However, this is especially so if the second day’s closing price remains below that of the first day. This is known as an “on neck line”. If the second day’s closing is slightly higher than first day’s closing, it is called an “in neck line”. In other words, an in neck line closes higher than an on neck line. In the case of an in neck line, the trend will likely continue downward, but there is a small significant chance that another outcome will occur.
Your Next Move
Bearish neck lines suggest a continuation of the current pattern, so the best decision may be to stay with your current course. If there has been a trend of long black candles, the downward movement clearly has momentum. Sometimes the white candlestick is caused by a mere increase in trading volume the next day, which slightly increases almost all prices. While bearish neck lines make many investors, especially sellers, uncomfortable, the usual outcome is that the bearish movement continues on the third day. Neck lines simply do not have the strength necessary to break downward momentum, and they don’t truly affect the long term outcome because the closing price is so near to that of the previous day. However, waiting for confirmation on the third day is always a good plan, even if all signs suggest that the market trend downward is gaining strength.
Confirmation
There are three key factors that can confirm the bearish direction of the neck lines candlestick pattern. A black candlestick on the third day clearly shows a continuation of the downward trend, especially if the candlestick has a long body. A gap down between the closing price of the second day and the opening price of the third day indicates that the bearish trend will continue as well. Last, a lower close of the third day confirms the bearish neck lines pattern.
Similar Patterns
There are two patterns that are similar to the neck lines candlestick pattern, and it is important not to confuse them because of their very different outcomes. The bullish piercing line pattern begins in a similar manner to the on neck lines pattern, but it finishes significantly higher than the previous day’s close. Because of this, it usually marks the beginning of a bullish streak, which is very different from necklines. There is another candlestick pattern called the Meeting Line pattern that has a longer body on the second day and thus is more indicative of a turnaround. These similarities make it even more important to get confirmation before making large financial decisions based on a candlestick pattern.
Source : candlestickanalysis.com
