Bulkowski's On Neck

Written and copyright © 2008-2011 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 on neck candlestick pattern is a peculiar name for a candle that does not work well as a continuation. Yes, it functions in theory as it does in reality, but the continuation rate is what I consider "near random." Once price breaks out, the trend is decent for upward breakouts, but not so good for downward ones.

On Neck Important Results

Theoretical performance: Bearish continuation Tested performance: Bearish continuation 56% of the time Frequency rank: 70 Overall performance rank: 33 Best percentage meeting price target: 64% (bear market, up breakout) Best average move in 10 days: 8.32% (bear market, up breakout) Best 10-day performance rank: 6 (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. The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

On Neck

On Neck Discussion

The on neck candlestick pattern is a two line candle with a downward price trend leading to it. A tall black candle is the first to appear followed by a white candle with a close that matches the prior low.

The pattern works in theory as it does in reality, that is, as a bearish continuation 56% of the time. I consider that "near random." The best average move 10 days after the breakout occurs in a bear market after an upward breakout. Price climbs 8.32% when a move of 6% is considered good. That gives it a very high 10-day performance rank of 6 (out of 103 candle types, where 1 is best).

On Neck Identification Guidelines

Three Trading Tidbits for the On Neck

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.

1. On neck candles that appear within a third of the yearly low perform best -- page 610.
2. Select tall candles for the best performance -- page 610.
3. On neck continuation candles occur most often within a third of the yearly low -- page 611-612.

On Neck Example

The on neck candlestick pattern shown on the daily chart is circled in red. Price forms a tall black candle followed by a white candle. The closing price of the white candle is at or near the low of the black candle. Both appear in a downward price trend, as required.

In this example, the on neck breaks out downward two days after it completes in what looks to be a high wave candle (it would be a long legged doji or even a Rickshaw man but the body has a height and the shadows should be longer for a rickshaw man). The downtrend reverses there and moves up only to reverse and eventually continue moving lower, joining the primary down trend already in existence.

-- Thomas Bulkowski

Copyright © 2008-2011 by Thomas N. Bulkowski. All rights reserved. I reached enlightenment, and all I got was this STUPID AURA.