Dark-Cloud Cover & Piercing Pattern

Dark-Cloud Cover:

Our next reversal pattern is the dark cloud cover (See Image).

It is a dual candle pattern that is a top reversal after and uptrend or, at time, at the top of a congestion band. The first day of this two candle pattern is a strong green real body. The second day's price opens above the prior sessions high (that is above the top of the upper shadow). However, by the end of the second day's session, the market closes deeply within the prior days green body.

Some factors intensifying the importance of dark cloud covers include:-

1. The greater the penetration of the red real body's close into the prior green real body, the greater the chance for a top.
2. If the second body of the dark cloud cover opens above a major resistance level and then fails, it would prove the bulls were unable to take control of the market.
3. If, on the opening of the second day, there is a very heavy volume, then a buying blow off could have occurred.

How to Trade?

See the chart, A Dark cloud cover has been formed at the high point. You can see the second candle of dark cloud cover has been closed near the 50% of the first candle. So we will consider it as dark cloud cover. You can trade only when the second candle of the dark cloud cover had closed below the 50% of the first candle (See the arrow) and book your profit near support line (Dotted line).

Piercing Pattern:

For most bearish pattern there is an opposite bullish pattern so it is with the bearish dark cloud cover. The dark cloud cover's counterpart is the bullish piercing pattern. The piercing pattern is composed of two candles in a falling market. The first is a red real body and the second is a green real body. This green candle opens lower, ideally under the low of the prior red candle (See image). Then price rebound to push well into the red candles real body and closed above the 50% of previous red real body (Remember that shadow is not important in this pattern).

How to trade?

It is very simple to trade piercing pattern as dark cloud cover. Look at chart the price falling down sharply and market formed a piercing pattern. After the piercing pattern, there is a consolidation for around 3-4 days & market  suddenly break down to near bottom of the piercing pattern but remember that the bottom of piercing pattern also work as support line. So you can see the price did't break that support area & market moved up side. Also consider the volume (black arrow) on green candle's day is greater than the previous bearish red candle's volume that is another bullish signal to move price upside.