It is two candlestick pattern formed when a small body follows a large down candle up a candle that gaps down on the open but closes at a price near the large bearish candle. Such a pattern is called On Neck because closing prices of both candles are almost the same, forming a horizontal neckline.
Theoretically, the pattern is considered a trend continuation, representing that price will carry on lower following the pattern. In actuality, that merely happens about half of the time; for that reason, the pattern also frequently indicate at least a short reversal.
The on neck candlestick pattern is usually formed during a downtrend or pullback within an uptrend when a large real body bearish candle is followed by a small bullish candle that fails to close overhead the bearish candle close. The smaller up candle can take any number of forms such as rickshaw man or doji.
The pattern shows bulls attempting to take price above bearish candle but fails to push the price above it. Ideally, it is projected that the price will continue the lower trend. According to the Encyclopedia of Candlestick Charts by Thomas Bulkowski, the price endures downtrend only 56% of the time and rest of the time; it will be performing as a reversal pattern to the upside.
According to the study of Thomas Bulkowski when price did a reversal, the confirming move was more massive. As a result, the traders may prefer possible reversal than lower trend continuation. This kind of action is likely to be slightly bigger than declines that follow the pattern.
Usually, most traders use on neck pattern in conjunction with other forms of chart patterns, technical analysis and indicators. This is because, on the Neck, pattern can move in either direction, so the use of different indicators help to determine the direction.