Introduction

In-Neck and On-Neck are bearish continuation candlestick patterns that appear during a downtrend. They indicate that sellers remain in control after a minor pullback.

Definition and Appearance

The pattern consists of two candles: the first is a long bearish candle, and the second is a small bullish candle that opens below the close of the first candle and then rallies to close at or slightly above that close. The "neck" is the close of the initial bearish candle.

On-Neck: the second candle closes exactly at the first candle's close.

In-Neck: the second candle closes slightly above the first candle's close.

How to Identify

Context: a clear prior downtrend is required.

Candle 1: long body, bearish, closing near its low.

Candle 2: small body, bullish, opening below the close of candle 1 and closing at or just above that close.

Candle 2 should not exceed the opening of candle 1.

How to Trade

Entry: Wait for the price to break below the two-candle low for confirmation of continuation.

Stop-loss: Place above the high of the second candle to limit risk.

Take-profit: Use Fibonacci extensions or previous support levels.

Real Example

On the H4 chart of USD/JPY, after a strong decline, an On-Neck pattern formed when a small bullish candle closed exactly at the close of the prior large bearish candle. The next session broke the local low and continued down 100 pips, confirming the continuation signal.

Common Mistakes

Confusing In-Neck with bullish reversal patterns like the Piercing Line because a bullish candle appears. Remember: In-Neck follows a long bearish candle, and the bullish candle fails to close beyond the midpoint of the bearish body.

Trading without a clear prior downtrend.

Entering immediately on the second candle without waiting for a break confirmation.

Not using a stop-loss, which leads to heavy losses if the pattern fails.

Content is for reference only, not investment advice. Forex trading carries high risk.

In-Neck and On-Neck: Bearish Continuation Candles