In Neck Line candlestick pattern Trading Strategies

A bearish continuation candlestick pattern that develops in a negative trend and implies that the market is heading for new lows is known as an in neck line. It consists of a negative candle followed by a positive candle that just manages to close at or slightly above the preceding bar's closing. In a downtrend, the in neck line is a bearish continuation candlestick pattern that indicates that the bad trend will continue.

Recognition Criteria 

• The trend is negative
• The first candle is negative.
• The second candle opens below the close of the previous candle, but closes at or slightly above the close of the previous candle.

The in-neck design is similar to the on-neck pattern in appearance and meaning. The distinction is that in a on neck pattern, the last candle closes slightly below the preceding bar's closure.

What Does the In neck Line Tell Us

All candlestick patterns reveal information about the market factors that drove a market move. And by examining trends in order to figure out what forces were at work, we might be able to acquire a competitive advantage in the markets.

So, let's see what the market tells us about the in neck line!

Because the main trend is bearish, market sentiment is similarly gloomy, and the majority of market participants expect prices to decrease. The first candle, which closes lower, reflects this.

The gloomy attitude continues the next day, with the market gapping down, adding to the bearish sentiment.

However, because the market has fallen so much in such a short period of time, some market participants feel the market has been oversold. As a result, they opt to take long positions in the hopes of a short-term pullback. The market rises a little due to increased purchasing pressure. However, it never closes above the preceding bar's closing, indicating that bulls aren't powerful enough to spark a larger trend reversal.

Those who were long decide to sell their holdings as soon as they realize this, and the market is on its way to new lows once more.

How to Improve the In Neck Line for Live Trading

When most traders learn about a new candlestick pattern, they hurry to the markets to put it to use. This is seldom a good idea, though.

Without additional filters or criteria to eliminate some of the erroneous signals, most candlestick patterns aren't very effective.

So, in this section of the book, we'd like to offer some of the most effective tactics we've created over the years and have successfully used to a variety of trading strategies.

Let's have a look at what we've got here!

1. Seasonality

In most markets, there are seasonal impacts that cause the market to become more bullish or bearish on a regular basis.

Seasonality is now commonly used for extended time spans, such as months or even years. However, we discovered that you may find important patterns by looking at much shorter periods of time.

For example, many markets have more bullish weekdays than others, or even a specific time of day that frequently produces above-average returns.

We can better time our entrance if we know when these seasonal or time-based trends are in play. For example, if we see an in neck line emerge as we approach a very bearish period of the week, we may be a little more certain that the market will continue to fall.

We've had the best success with the following seasonal and time-based tendencies:

Monthly- There are usually a few months that have a lot of good or negative trends. For example, during the winter months, the heating oil market does well owing to increasing demand since more people need to heat their houses.

Day of the month - You may also split the month into two or three halves to determine if your technique performs better or worse in each half.

Day of the week - As we've already mentioned, different days of the week might have quite different features in different markets!

Time of day - With decent results, you might choose to only trade during the beginning or second part of the day.

2. Market sentiment indicators

Aside from standard trading indicators that are entirely based on price movement, there are a few extra tools that most traders are unaware of. Market mood indicators are what they're called.

Market mood indicators provide a wider perspective of the market by calculating total up-volume vs. total down-volume for a whole exchange. That manner, we may gain a feel of the general market situation, which can have a big influence on trading strategy performance.

If you're interested in learning more about market sentiment indicators and how they function, we highly recommend reading our comprehensive essay on the subject!

3. Volume

While a price chart can show us how a security moves, it can't tell us anything about the market participants that backed it up.

This is where the use of loudness as a tool comes in handy. By include volume in our study, we can observe not just how the market moved, but also how confident the market was in making that move.

In general, large volume indicates that a move is more substantial, whereas low volume indicates that only a few market players supported the market activity.

To employ volume with the in neck line pattern, require that the first, negative candle be generated with far less volume than the second bullish candle. We can observe that market participants were considerably more interested in driving prices upwards than than downwards in this way.

Volume has shown to be quite beneficial in a variety of trading techniques. The following are the most common conditions we use:

Volume is larger or lower than the previous day's volume — While this is a very basic criterion, it often works remarkably well!

x-bars back – Volume is at its highest or lowest reading. This situation is similar to the last one, but it seems to require a little more from the market.

Many individuals are unaware that you may utilize trade indicators like the RSI or Bollinger bands with volume!

                                                

In Neck Line Trading Strategies

We wanted to discuss several trading methods that rely on the pattern now that we've looked at some excellent ways for weeding out poor bets.

Having said that, the methods described below are not ready to trade in their current state and must be applied to the appropriate period and market. For this, we recommend that you utilize backtesting!

That said, they're great for inspiration and should get you started experimenting with different filters and configurations.

Let's have a look at them now!

                                      

Trading Strategy 1: ADX Filter With In Neck Line

The ADX indicator is one of the most widely used trading indicators for weeding out faulty trades.

The ADX indicator assesses the strength of a trend and gives ratings ranging from 0 to 100. A number of 25 indicates a strong trend, whereas a rating of 20 indicates a weak trend.

We want to see a lot of negative momentum while trading the in neck line. We may infer that the negative forces are capable of pushing the market considerably lower, and that the adverse trend will continue in this manner.

As a result, in order to make a deal, we'll need:

The market is in a downtrend with an in neck line, and the ADX is over 30.

The market is in a downtrend with an in neck line, and the ADX is over 30.

Trading Strategy 2: Breakout Condition With In Neck Line

Before initiating a transaction, you may wish to double-check that the market moves in the way you expect. That's exactly what this technique accomplishes!

We'll need the market to create the in neck line pattern before we can initiate a transaction. After that, we'll add a breakout level, which will be set at the open of the pattern's second bullish candle. We'll wait for confirmation that bears are currently in command in this manner.

So, these are the rules for entering a trade:

The neck line design is created by the market.

Then we wait for the market to drop below the second bar's open.

A bearish candlestick pattern that appears in an ongoing downturn and indicates that the market is headed for new lows is known as an in neck line.

Always keep in mind that candlestick patterns should never be traded alone. In most situations, they must be combined with other types of technical analysis in order to be profitable to trade!