Piercing Pattern

The Piercing Pattern is a bullish candlestick pattern used by technical analysts to signal a potential trend reversal in the market. It forms over two periods and consists of a long red candlestick followed by a long green candlestick that opens below the previous day's close but closes above the mid-point of the previous day's candlestick. The pattern suggests that after a period of selling pressure, buyers have gained control and are pushing prices higher.

Similar to a bullish engulfing pattern the green candle opens below the previous long red candle and covers 50% or more but not 100% of the same candle. If the market closes below the piercing pattern by way of a long red candlestick, then the downtrend is likely to continue.

Well, traders can also use other technical tools to confirm the pattern or wait for a confirmation by the chart itself with another green candle closing above the high of the pattern formed.

What does this indicate in the market?

The bears had control over the market indicted by big red candles with lower highs and lower lows. Now, the next candle opens lower with a gap indicating a bearish move, and then the price experiences a strong upthrust by the bulls giving a close somewhere between more than 50% and less than 100% of the previous candle.

Example

Let’s take an example, we have taken ONGC on a daily time frame and it is clearly visible also we have marked that on 7th December 2017, the piercing pattern was formed. As we have discussed earlier the pattern satisfies all the conditions and is also confirmed by a large bullish candle. After which the price went up like a rocket giving a good amount of return of about 20% within two months.

Dark-Cloud Cover

The Dark Cloud Cover is a top reversal pattern after a uptrend that is commonly used by technical analysts to signal a potential trend reversal in the market. It forms over two days and consists of a long green candlestick followed by a long red candlestick that opens above the previous day's high but closes below the midpoint of the prior day's candlestick. The pattern suggests that after a period of buying pressure, sellers have gained control and are pushing prices lower.

Now that you have learned about “Piercing Pattern” the dark-cloud cover is just the reverse of it. The first candle must be a green candle indicating a strong up trend, the second candle must open above the high of the previous session (Gap-up) and close somewhere between more than 50% and less than 100% of the previous candle (must form a red candle). If it does not give a half way close then we should wait for more bearish confirmation.

Example

We took ONGC on a daily time frame and it is visible also we have marked that on 28th May 2015, the Dark-Cloud Cover pattern was formed. As we have discussed earlier the pattern satisfies all the conditions. Soon after which the prices fell significantly by more than 30%, so if we would have initiated a short position then we could have captured a big move.

Key Takeaways

• The Piercing Pattern is a bullish candlestick pattern, while the Dark Cloud Cover is a bearish reversal pattern.
• The Piercing Pattern forms over two periods and consists of a long red candlestick followed by a long green candlestick that opens below the previous day's close but closes above the mid-point of the previous day's candlestick. It suggests that after a period of selling pressure, buyers have gained control and are pushing prices higher.
• Traders can use other technical tools to confirm the pattern, such as moving averages or volume indicators, to help identify potential trading opportunities.
• The Dark Cloud Cover forms over two days and consists of a long green candlestick followed by a long red candlestick that opens above the previous day's high but closes below the mid-point of the prior day's candlestick. It suggests that after a period of buying pressure, sellers have gained control and are pushing prices lower.
• It's important to use these candlestick patterns in combination with other technical analysis tools and to consider the overall market conditions and trends before making any trading decisions.
• Traders should also manage their risk carefully and set stop-loss orders to limit their losses if the market doesn't follow through with the anticipated trend reversal.