The bearish neck lines

The last bearish double-stick pattern in this chapter is the bearish neck lines, and just like its bullish counterparts from Chapter 7, this pattern is more of a pattern classification than one single pattern.

Figure 8-27:

The bearish separating lines fail on a chart of GE.

Figure 8-27:

The bearish separating lines fail on a chart of GE.

Figure 8-30:

A failure of the bearish neck lines pattern.

Figure 8-30:

A failure of the bearish neck lines pattern.

Recognizing bearish neck lines

Bearish neck lines have two types: bearish on neck lines and bearish in neck lines. The difference between the patterns is so small that you don't have to separate them out into two sections.

Figure 8-28 includes both bearish in neck and bearish on neck patterns. The only difference is that the wick of the in neck setup day may overlap some with the signal day of the pattern. Both variations have a long black candle for the setup day followed by a gap down and a rebound attempt that manages to trade back only to the close of the setup day. The bears hold their ground at this level.

Figure 8-28:

The two variations of the bearish neck lines pattern.

Using the bearish neck lines for profitable trading Figure 8-29 shows a chart of the futures contract that trades based on the prices of 30-year bonds issued by the U.S. Treasury. The bearish neck lines on this chart are in neck because the setup day overlaps with the signal day. The bulls try to rebound the futures price, but they're met with bearish resistance at the previous opening price. Then you see a brief battle between the bulls and bears followed by a continuation of the downtrend.

wjThis pattern is valid even though prices don't immediately continue down on Y the following day. The trend doesn't really break, and the price levels of the ilsl ) long black day aren't violated. The next couple of days may be nerve-wracking \BU/ for bears, but those that hold their ground on a short are rewarded with lower prices.

Figure 8-29:

The bearish neck lines working on a chart of the U.S. Treasury bond futures.

Figure 8-29:

The bearish neck lines working on a chart of the U.S. Treasury bond futures.

Noticing an unsuccessful bearish neck tine

Just like the rest of the two-stick patterns in this chapter, the bearish neck lines can fail. Refer to Figure 8-30.

Figure 8-30 is a chart of the stock representing ownership in U.S. Steel (symbol X). Because U.S. Steel is such a large producer of an eminently vital material, the company is very economically sensitive, and its stock is volatile for trading both long and short.

The bearish neck lines appear during a downtrend, and the other criteria are in place; the setup day is represented by a long black candle, which is followed by a gap down. Prices then rebound, but the bears hold the price steady. All appears to be well, but then a couple of days after the pattern appears, the bulls get rolling on a more successful run and the trend changes.

I point to two days as failure days in Figure 8-30. Choose whichever resistance level you want, but when a long black candle day is involved, picking the midpoint may be prudent if you hope to get out of a short or buy before the trend is in full swing and the prices you're facing aren't too steep. The first failure day trades through the midpoint, the second trades over the high, and then the uptrend is in place.

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