The Piercing Pattern


In the case of Piercing Pattern, minimum two candles must be present. Red candle should be formed at the bottom end of downward rally, and the green candle must engulf the red candle, but the engulfing is partial i.e. anywhere between 50% to 100% and this is the only difference when compared to bullish engulfing. Every other characteristic of bullish engulfing pattern remains same i.e. even this indicates potential reversal of trend.



In the above chart, we can observe the following :

1. Red candle formed at the bottom end of the downward rally .
2. Green candle formed engulfing the red candle partially.
3. It resulted in the reversal of trend.
4. Main condition is that green candle should engulf the red candle more than 50% but less than 100% for it to be called as piercing pattern. If its 100% or more then it is called bullish engulfing, but if it is less than 50 % then the reversal of trend will not happen.

The Dark Cloud Cover

This is similar to the bearish engulfing pattern except that there is partial engulfing. To explain clearly, green candle forms at the top end of the upward rally and red candle forms and engulfs green candle partially which is anywhere between 50 % and 100% , then such pattern can be termed as Dark cloud cover and trade implication is same as Bearish engulfing pattern i.e. reversal of trend. Again, if the candle engulfs partially but less than 50% then it will not qualify to be termed as dark cloud cover and hence that is the main condition.




We can make following observations in the above chart:

1. Green candle formed at the top end of the upward rally.
2. Red candle formed engulfing the green candle partially i.e more than 50 % but not complete candle.
3. Such formation lead to reversal of trend i.e to proper downward rally.
4. There is always risk attached to any kind of pattern or stock market in general, so we need to keep proper stop loss to avoid heavy losses and in this case it should be few points just above the pattern, so that if reversal of trend does not happen, we will still be not making any huge losses





Here above is another example for perfect dark cloud cover pattern.

To Summarize :

1. Piercing pattern is similar to Bullish engulfing pattern, but the only difference is, there is only partial engulfing i.e anywhere between 50% to 100% and its formation results in reversal of trend leading to bullish trend.
2. Dark cloud cover is similar to bearish engulfing pattern, but the only difference is, there is only partial engulfing and its formation results in reversal of trend leading to bearish trend.
3. Important to set stop loss just few points above/below as the case may be, in case it does not result in reversal of trend as expected. It is necessary keeping in mind, every pattern comes with risk because market never behaves in the same manner.



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