Technical Classroom: How to read Piercing Line and Dark Cloud Cover candlestick patterns


A confirmation for the dark cloud cover pattern comes in the form of a bearish candle at the end of the pattern. You will see an uptrend before a dark cloud cover pattern is formed. This means that now you can get to see reversal in the market. Dark Cloud Cover Candlestick PatternYou will see an uptrend before a dark cloud cover candlestick dark cloud cover pattern is formed. The dark cloud cover pattern can be identified when a ‘bearish candle’ opens above the close of the previous ‘bullish candle’ but close below the midpoint of ‘bullish candle’. Traders can use this pattern to decide on the exit from a long position or entering a short position, as it spots an upcoming reversal.

Before trading, you should carefully consider your investment objectives, experience, and risk appetite. Like any investment, there is a possibility that you could sustain losses of some or all of your investment whilst trading. You should seek independent advice before trading if you have any doubts. Past performance in the markets is not a reliable indicator of future performance. Traders may use the Dark Cloud Cover pattern in conjunction with other forms of technical analysis.

  • It sounds like finding real Dark Cloud Cover instances are too rare (interesting though!).
  • If the volume is high during the formation of this candle, there are more chances of the reversal to take place.
  • Although the two candlestick charts patterns are similar in appearance, they translate into two completely different market scenarios.
  • In the bullish version, the first candle is long-bodied and red in colour, indicating that the selling pressure is continuing.

Dark Cloud Cover is a bearish reversal candlestick pattern that is formed at the end of an uptrend. For bearish reversal, the stock must be indefinite uptrend before the bearish engulfing pattern occurs. The candlestick pattern is mainly referred to as a pattern under the technical analysis, and it is mostly a bearish reversal signal.

As soon as you get the breakdown of the low of the bullish candle, you can make your position in the market. This Bearish candle will close below 50% of the previous Bullish candle. The pattern is more reliable if the second candlestick closes below the middle of the first candlestick.

Indication made by Dark Cloud Cover Pattern

‘Investments in securities market are subject to market risk, read all the related documents carefully before investing. The larger the body of the P1 and P2 candles, the stronger will be the reversal. So after the opening of the stock, though bulls tried to force the stock price upwards, the price starts coming down by a long way. If the volume is high during the formation of this candle, there are more chances of the reversal to take place. You can also use technical scans to filter out stocks for trading the next day by usingStockEdge App, now also available in theweb version.

Hanging man appears at the end of a bull run and it is a bearish signal. The larger the penetration of the previous candles the more the powerful the signal. A harami pattern shows a decrease in the volatility of the price.

candlestick dark cloud cover

Please verify with scheme information document before making any investment. Some long term investors believe in buying and holding their shares forever. You are wondering if you should partially book some profit. Booking loss is a very important part of becoming a successful trader.

Bearish Engulfing Candlestick Pattern

But, before digging in deep about the pattern, we need to learn the basics of the dark cloud cover candlestick pattern. Traders utilize other methods or candlestick patterns for determining when to exit a short trade based on Dark Cloud Cover. The bearish candle closes below the midpoint of the previous bullish candle. The bullish piercing pattern occurs at the end of the downtrend whereas dark cloud cover occurs at the end of an uptrend. According to analysts, the penetration of the close of the second day must be at least 50% into the body of the lighter candlestick.

candlestick dark cloud cover

It’s called a ‘Dark Cloud Cover’ when the pattern appears during an uptrend. We do not sell or rent your contact information to third parties. Also the larger the gap between the closing price of P1 and the opening price of P2, the stronger will be the reversal. The stop loss would be placed just above the high of the P2 candlestick.

Once the price goes higher, sellers take control later and push the price lower significantly. This shift to selling from buying signifies a more reliable potential reversal. If the same pattern is observed from the choppy trend instead of an uptrend, it tends to be less reliable. The pattern indicating the dark cloud cover is known to involve a large-sized black candle that forms the “black cloud” – usually that hovers over the preceding candle. As in the case of a typical bearish engulfing trading pattern, the buyers are known to push the over price higher during the open phase.

Example, if the green candle’s range (Open – Close) is 10, the red candle’s range should be at least 5 or higher. The larges bearish candle appears in an uptrend, opens above the previous bullish candle. Since it is a bearish indicator, it is valid if only appear in an uptrend. Short bodied candles are often ignored as they aren’t potentially strong enough to drive a change in momentum. And thirdly, the pattern is more significant when the bearish candle closes below the midpoint of the green candle, preferably with no shadows.

Importance of the Dark Cloud Cover pattern

In this dark-cloud cover, the second day’s black real body opened at the prior day’s high instead of above it. It was still only a warning sign but it was viewed as a negative factor. This dark-cloud cover also signified a failed attempt by the bulls to take out resistance at the mid-February highs. Majority of the traders consider that the dark cloud cover candlestick is only useful when it occurs at the end of an uptrend. The information on the website and inside our Trading Room platform is intended for educational purposes and is not to be construed as investment advice. Trading the financial markets carries a high level of risk and may not be suitable for all investors.

candlestick dark cloud cover

For example, heavy volume at a new opening high could mean that many new buyers have decided to jump aboard ship. It probably won’t be too long before this multitude of new longs realize that the ship they jumped onto is the Titanic. For futures traders, very high opening interest can be another warning.

Though it is relatively easy to spot the dark cloud candlestick pattern if you are new to trading, you might require some practice. The pattern consists of two candlesticks, where the first one is bullish while the second one is bearish. If entering short, the initial stop loss could be placed above the high of the bearish candle.

However, harami formation with opposite colours increases the dependability and, therefore, traders usually ignore the pattern when both are of the same colour. A bullish harami formation coinciding with other bullish signals, such as breakouts from a falling trend line and upside breakout of long-term moving averages. If, on the opening of the second day there is very heavy volume, a buying blow off could have occurred.

Dark Cloud Cover Pattern – Key Insights

In a choppy market, the Dark cloud cover candlestick pattern has less significance. At the opening of the market trend, an upward progression is observed with the price opening at its low and buyers willing to pay for the stock in an aggressive manner. The end of the session marks the close of the price and a bullish white candle is formed. The piercing pattern is a bullish trend reversal or bottom reversal pattern that appears towards the end of a downtrend. The name ‘dark cloud cover’ is given as a large black candle looks similar to a ‘dark cloud’ over the previous day’s candle.

Hanging Man Candlestick Pattern

To sum up, the dark cloud cover pattern is easy to identify candlestick patterns, which helps the traders by spotting potential reversal. Though the pattern is efficient, relying on it in isolation can be riskier for the traders. The reversal can be confirmed using a dark cloud cover pattern with other technical indicators.

In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals. A higher level of confidence is also placed in the dark cloud cover pattern formation when a high volume of trading occurs at the time when the candles are formed.

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