This post will cover the Piercing Line and Dark Cloud Cover candlestick patterns. Before I start, if you are new to candlesticks and want an introduction, you can start here.
The Piercing Line and Dark Cloud Cover:
Note: For this post all white candles used in illustrations will mean the candle closed bullish and black candles means it closed bearish.
As with most candlestick patterns, there’s a bullish and bearish version – in this case, the Piercing Line is bullish and the Dark Cloud Cover is bearish.
The Piercing Line is bullish because it forms after a downtrend. It consists of 2 candlesticks. The first one is black because it forms part of the existing downtrend. The second candle is the reversal candle. It gaps down below the low of the first candle and closes very strong, more than 50% into the body of the first candle.
The Dark Cloud Cover is bearish because it forms after an uptrend. It consists of 2 candlesticks. The first one is white because it forms part of the existing uptrend. The second candle is the reversal candle. It gaps up above the high of the first candle and closes very strong, more than 50% into the body of the first candle.
See below:
The Piercing Line and Dark Cloud Cover in Context:
As stated before, the Piercing Line and Dark Cloud Cover are reversal patterns. This means that the Piercing Line will form after a falling market and the Dark Cloud Cover will form after a market that has moved higher.
See Below:
Piercing Line:
Dark Cloud Cover:
Finally:
These patterns can’t be traded blindly whenever they show up on a chart, but should be traded in the context of the market. Their odds of working increases when both candles are longer, the gap is bigger or the deeper the reversal candle closes into the body of the first candle. Odds also increase when it’s traded in conjunction with other factors such as support and resistance or from overbought / oversold conditions.
I hope you found this post useful. Thanks so much for reading.
Thanks and Regards,
Trading SOS SOS
