Trend trading is one of the most profitable trading strategies. You must have heard the oft repeated quote that Trend is your friend. But trend can only be your friend if you know how it is going to behave in the future. If you don’t know that the trend is going to reverse soon, you are going to end up with a heavy loss. Candlestick charting is one of the ways to predict the future of a trend whether it is going to reverse itself in the near future or continue for sometime. Bullish Necklines is a candlestick pattern that can help you know whether the trend is continuing or not. It is a trend confirmation pattern. There are types of Necklines Patterns; one is the In Neck and the other is the Out Neck Pattern.
The candle formed on the setup day should be a long bullish candle that shows a lot of buying. On the signal day a bearish candle either long or short is formed with its closing price very near the close of the setup day.
If the closing price on the second day is very near the closing price on the first day, the neckline candlestick pattern formed is known as the on neck pattern. If the closing price on the setup day is a little lower than the closing price on the second day, it is known as in neck pattern.
Not much of a difference but you should nevertheless know this difference. Both on neck and in neck pattern tell the same story, so even if you are not able of distinguish between them, doesn’t make much of a difference. When this pattern appears in an uptrend, it means that the uptrend will continue in the future.
Now, let’s talk about a trend reversal candlestick pattern; The Bearish Meeting Line. On the first day or what you call the setup day, you will find a long bullish candle.What this means is that heavy buying took place throughout the day. On the second day or what you call the signal day, you will find a gap opening. This gap entices the sellers to start selling that continues throughout the day. This will result in a long bearish candle on the second or what you call the signal day. This long bearish candle should have a close very near the open of the low of the day as well as the close should be very near to the close on the first or what you call the setup day. This is a Bearish Meeting Line Trend Reversal Pattern. What is means is that the trend is about to reverse itself soon!
Another trend reversal pattern is the Bearish Piercing Ling Pattern. This candlestick pattern is formed when on the first or the setup day, a bullish long candle is formed meaning that the bulls have been in control of the market throughout the day. The second day or what you call the signal day, there will be a bearish candle formed. This bearish candle should have an opening higher than the first day’s high. This means that on the second day or what you call the signal day, the sellers started selling pushing the price action down past the opening price to the midpoint of the first day candle.
This is a trend reversal pattern that usually occurs in the last stages of an uptrend. The price is still rising but it has lost its momentum. Now as a trader, when you combine these candlestick patterns with technical indicators, you get a powerful tool in your arsenal.
