The dark cloud cover is a two candlestick pattern normally found at the top of an uptrend.
A piercing pattern forms in a down trend and is the opposite of the dark cloud cover.
The Dark Cloud Cover.
The dark cloud cover is a bearish reversal candlestick pattern. It appears at the top of the uptrend and signals possible trend reversal.
In addition, the dark cloud cover is a two candlestick pattern with a large bullish candle followed by a small bearish candle.
In order for it to be significant, the bearish candlestick must atleast cover more than 50% price level of the previous large bullish candlestick.
This means that the bulls/buyers are stronger in the market.
Unfortunately, the sellers just come in strongly and pushed prices as low as 50% of the buyers. The deeper the penetration of the second candlestick the more significant it becomes.
How to identify a dark cloud cover/ Characteristics
- The deeper it goes the stronger the pattern and the more valid it gets.
- Currency pair must be trending upwards.
- A dark cloud cover comprises two candlesticks, where the first candlestick is a large bullish candlestick and the second is bearish.
- The second candlestick should open with a high above the high of the first candlestick and close below halfway/50% of the first candlestick. It opens above the close of the first candle.
- More so, the dark cloud cover appears at the top of a long uptrend or at times at the top of a congestion.
Let’s try to identify a dark-cloud cover on the chart below.
The piercing pattern
It is a bullish reversal pattern and is the opposite of the dark cloud cover.
A blue candlestick pierces the strong bearish candlesticks. The piercing pattern forms at the end of a down trend.
The large bearish candlestick shows that the bears are strongly over the market driving prices as low as possible.
Formation of the bullish candlestick after the close of the bearish candle shocks the bears. Moreover prices move back up with strong momentum. It then closes above half way of the previous price.
This may lead to indecision or the reversal of the trend.
How to identify a piercing pattern/ characteristics
- The currency pair must be in a down trend.
- The piercing pattern comprises two candlesticks, where, the first candlestick is a large bearish candlestick and the second is bullish.
- The bullish candle must close above the half way of the first candlestick.
- The deeper it pierces the previous price the stronger it gets.
When you take a good look at the above chart,
It clearly shows that a piercing pattern is a bullish or bottom reversal pattern.
On the other hand a dark-cloud cover is a bearish or top reversal pattern.
Incase you spot a piercing pattern at the bottom of a downtrend, prepare for trend reversal to the upside. However, wait for the confirmation candle to form in the favor of your direction before you buy.
Similarly, If you spot a dark-cloud cover at the top of an uptrend, prepare for a probable reversal to the down side. In the same way, wait for the confirmation candle to the downside before you sell.
Like any other candlestick pattern, these patterns give strong signal confirmations when spotted on support and resistance levels.
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