The candlestick pattern called Bearish Piercing Candlestick is the same as the “Dark Cloud Cover”. It is formed following an advance and indicates a bearish reversal. It is made up of two candles, the initial of which is a bullish candle that signifies the upward trend will continue.
The second candle, which is bearish, has an opening gap up but closes with far more than 50% of the preceding candle’s genuine body, indicating that the bears have returned to the market and that a bearish reversal is about to occur.
The opposing pattern is a bullish piercing. It mostly takes the shape of stocks and indices. To maximize profits, it is usually traded at the peak of the price chart.
Identification of Candlestick Pattern
There must be a clear uptrend. The two candles make up the pattern. The pattern’s opening candle is an upward or bullish candle. (green). A bullish candle must come before a second candle that is bearish (red). The middle of the green candle must be crossed by the red candle. It must start higher than the preceding candle’s high and end farther down its body than the previous candle did.
When a second, smaller-sized black candle appears following the first one, the pattern is confirmed. The size of the reversal will increase with the height of the gap up from the close of the previous candle. This demonstrates how the market was not able to support those high prices.
The length of the green candle and the red candle will determine how noticeable the reversal is. The strength of the reversal will increase with how low the black candle ends into the green flame. The likelihood of the reversal increases if both candles have strong volumes in comparison to earlier candles.
The implication of Bearish Piercing Candlestick
A trader can learn a lot from a piercing line indicator. The price closing much above the bearish candle first informs them that now the bearish trend is fading. Second, the pattern alerts them to the impending beginning of a new bullish trend. However, when there is a fake breakout pattern, it also alerts traders that there can be a bearish continuation.
The bearish piercing pattern denotes that after a prolonged uptrend, sellers now outnumber buyers, and the price will decline.
Before the candlestick pattern formed, there was a bullish trend, which indicates that purchasers are decreasing over time. Because of overbought conditions, a decrease in price is inevitable because consumers won’t be able to keep the price high for very long.
Because they don’t want retail traders to make money, institutional traders would try to catch the retail traders at a certain critical level before the price trend reverses. They will therefore create a misleading breakout of important levels in the shape of a gap because retail traders will purchase at resistance breakouts anticipating a breakout, while market makers have other ideas.
Price Action Confluences
While some candlestick patterns are effective in trending markets, others are effective in sideways markets. Therefore, it would be beneficial to add confluences to a trading configuration that you selected from the market. The three most common price action confluences to obtain a candlestick pattern with a high likelihood: are the overbought level, supply zone and resistance zone. Once the supply zone has been found, look for the creation of piercing candlesticks there.
A strong bearish trend reversal would develop as a result of the combined trend-reversal potential of the technical tools supply zone and candlestick pattern. Immediately after the candlestick closure, open a sell order. In case of a stop-loss point, set your stop-loss order above the supply zone or the high candlestick formation. Always pick the tallest place. In the case of the take-profit level, hold the trade till the risk-reward ratio reaches 1:2, then close out 75% of it with a 1:1 RR ratio.
