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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
In my book,
Encyclopedia of Candlestick Charts  , pictured on the right,
I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines
in the tests.
The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines,
performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators),
and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy
by clicking on the above link.
The in neck candle is a weird sounding name for a candlestick, but many of the candlestick names I consider unusual. The in neck is a two line pattern that begins with a tall black candle
followed by a white candle with a lower open, but a close near the prior day’s close.
The candle is suppose to act as a bearish continuation of the downward price trend and it does 53% of the time. I consider that "near random," so do not depend on price continuing lower.
However, once price breaks out, it tends to continue moving, judging from the overall performance rank of 17. That is a very good score. Weakness in this candlestick pattern comes
after a downward breakout in a bull market. The other combinations of market (bull/bear) and breakout direction (up/down) post decent performance numbers.
Important Results
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Theoretical performance: Bearish continuation
Tested performance: Bearish continuation 53% of the time
Frequency rank: 62
Overall performance rank: 17
Best percentage meeting price target: 61% (bull market, up breakout)
Best average move in 10 days: 6.34% (bear market, up breakout)
Best 10-day performance rank: 16 (bear market, up breakout)
All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.
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 In Neck
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Discussion
The in neck candle is quite a performer, but I will get to that in a minute. The candle pattern acts as a bearish continuation just 53% of the time, so expect a reversal even if you don’t
get one. Reversals will happen 47% of the time, on average. The frequency rank is 62, which I consider somewhat high. That means this candle is somewhat rare, which is unusual for a two-line
candle. Identification guidelines are to blame because price on the second day has to close into the body of the first day, but not by "much." What is meant by "much" is left
for the trader to decide.
The overall performance rank is 17, which is very good. If you look at the performance 10 days after the breakout, you will see a strong set of results. The best comes from upward
breakouts in a bear market. Price rises an average of 6.34%. I consider anything above 6% as good. The performance also ranks 16, where 1 is the best performance and 103 is the worst.
The in neck performs better than most of its peers.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Two. |
| Price trend leading to the pattern | Downward. |
| Configuration | Look for a tall black candle in a downward price trend. The next day, a white candle opens below the black day’s low, but closes just into the body of the
black candle. |
Three Trading Tidbits
If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book
where the tips appear.
- In neck candles that appear within a third of the yearly low perform best -- page 438-439.
- Select tall candles -- page 439.
- For best results, trade this candle in a falling price trend -- page 440.
Example
The in neck candlestick appears on this daily chart circled in red. The first candle line of the pair is a tall black candle. Following that,
a white candle opens lower, but closes near the black candle’s close. The white candle’s close should be inside the body of the black candle, but not by much.
This in neck appears near the resumption of the downward price trend. As a continuation candlestick pattern, it predicts price will continue falling, but look what happens. In this
example, price moves horizontally for almost two weeks before resuming the downward price trend. However, since the breakout from the in neck is downward (and a downward breakout is when
price closes below the bottom of the candlestick), this in neck does indeed work as a continuation pattern.
This chart is an example of the best setup for this candlestick. Trade the in neck candle in a downward price trend for the best results.
-- Thomas Bulkowski
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