On Neck Candlestick Pattern on Live Gold

What it shows

Each one gets a red label marked ON over the high of the second candle.

How Pravex works it out

1. What counts as long or small for the on neck pattern moves with the market, since the yardstick is a 14-candle exponential average of body sizes, where a body is the distance from open to close, so a quiet stretch lowers it and a busy one raises it.
2. The on neck pattern starts with a falling candle (close below open) whose body is long, above the average.
3. The second candle must be rising (close above open) and small, below the average body.
4. Its close must equal the first candle’s low, within 5% of the average body. With an average body of 4, for example, the close may sit up to 0.2 above or below that low.
5. The downtrend the on neck pattern needs is read from the first candle: by default its close must sit below the 50-candle simple average, and the trend setting can make the on neck pattern test stricter or switch it off.

Settings

Setting	Default	What changing it does
Trend check	SMA50	Decides what counts as a downtrend before the on neck pattern. By default one close is read against the 50-candle average; adding the 200-candle average asks for a longer trend before the on neck pattern, and switching the check off ignores the trend completely.
Label colour	Red (#F23645)	Colours the ON label that sits over the high of the candle completing the on neck pattern, with the ON letters always in white.

How traders read it

This is a continuation pattern: it does not call a bottom. The second candle is a bounce, but it only reaches the low of the drop, which buyers have just given up. Many textbook drawings look like a failed piercing pattern, and the reading is the same: sellers still hold the level.

The usual reading is a close under the second candle’s low as the next step down. A close above the first candle’s close says the bounce has more in it, and the continuation idea is off.

When it misleads

The tolerance is tight, 5% of the average body, so the label appears only when the close lands almost exactly on the first low. Our code does not ask the second candle to open below the first low, so some labels are a small candle that simply drifted up to that level. In a fall that is already stretched, a weak bounce can still be the start of a turn. Wait for the close before trusting a on neck pattern label on the latest candle, which is checked on each update and can lose its label.

Questions and answers

Is the on neck pattern bullish or bearish?

Bearish. It is read as a pause inside a fall, with the fall expected to continue.

How close does the close have to be to the low?

In Pravex, within 5% of the 14-candle average body, measured on the second candle.

What is the difference between on neck and piercing?

A piercing candle closes above the middle of the first body and is read as bullish. An on neck candle only reaches the first candle’s low and is read as bearish.

Related: Piercing - Bullish, Falling Three Methods - Bearish, Downside Tasuki Gap - Bearish, All Candlestick Patterns, every indicator.