Piercing Pattern and Dark Cloud Cover

The piercing pattern and dark cloud cover are two candle reversal patterns closely related to engulfing patterns. In each, the second candle moves strongly against the first and closes more than halfway into its body, but not beyond it. The piercing pattern is bullish and forms after a decline. Dark cloud cover is bearish and forms after a rise.

The rules#

If the second candle closes beyond the first candle's open, the pattern becomes an engulfing pattern instead. See Engulfing Patterns.

What the patterns show#

In a piercing pattern, the market opens lower, extending the decline, which encourages sellers. Then buyers push back so strongly that the candle closes more than halfway up the previous red candle. The sellers who sold the lower open are now losing, and the failure of the gap down suggests demand is returning. Dark cloud cover tells the same story in reverse.

Gaps in modern markets#

The classic definitions assume the second candle opens with a gap beyond the first candle's close. Daily stock charts still gap regularly, but in 24 hour markets like forex and crypto, gaps between candles are rare. Traders there focus on the depth of the second candle's close into the first body and use the pattern more loosely.

Strength factors#

• The deeper the second candle closes into the first body, the stronger the signal.
• Location at support (piercing) or resistance (dark cloud cover).
• Higher volume on the second candle.
• Alignment with the higher timeframe trend, for example a piercing pattern at the end of a pullback in an uptrend.

Trading the patterns#

1. Wait for the second candle to close past the midpoint.
2. Confirmation: many traders wait for a third candle to move further in the new direction.
3. Stop: below the pattern's low (piercing) or above its high (dark cloud cover).
4. Target: the next resistance or support, with a reward at least larger than the risk.

Common mistakes#

• Accepting second candles that close just shy of the midpoint; the depth is the signal.
• Trading them against strong trends without other evidence.
• Confusing them with engulfing patterns and expecting the same strength.

Frequently asked questions#

What is a piercing pattern?#

A bullish two candle reversal after a decline: a long red candle followed by a green candle that opens lower and closes above the midpoint of the red candle's body.

What is dark cloud cover?#

The bearish counterpart after a rise: a long green candle followed by a red candle that opens higher and closes below the midpoint of the green body.

Is a piercing pattern as strong as an engulfing pattern?#

Generally slightly weaker, because the second candle does not fully reverse the first. Location and confirmation make a big difference.

Next, learn the inside candle pattern: the Harami.