Piercing Pattern

The bullish counterpart to the dark cloud cover is the “piercing pattern.” The first thing to look for is to spot the piercing pattern in an existing downtrend, which consists of a long black candlestick followed by a gap lower open during the next session, but which closes at least halfway into the prior black candlestick’s real body.

Description

 The Piercing Pattern is composed of a two-candle formation in a down trending market. With daily candles, the piercing pattern will often end a minor downtrend (a downtrend that lasts between six and fifteen trading days). The day before the piercing candle appears, the daily candle should have a fairly large dark real body, signifying a strong down day.

Criteria

  1. The downtrend has been evident for a good
  2. The body of the first candle is black; the body of the second candle is
  3. A long black candle occurs at the end of the
  4. The white candle closes more than halfway up the black
  5. The second day opens lower than the trading of the prior

Signal enhancements

  1. The reversal will be more pronounced, if the gap down the previous day close is
  2. The longer the black candle and the white candle, the more forceful the
  3. The higher the white candle closes into the black candle, the stronger the
  4. Large volume during these two trading days is a significant confirmation.

Pattern psychology

 The atmosphere becomes bearish once a strong downtrend has been in effect. The price goes down. Bears may move the price even further but before the day ends the bulls enters and bring a dramatic change in price in the opposite direction. They finish near the high of the day. The move has almost negated the price decline of the previous day. This now has the bears concerned. More buying the next day will confirm the move. Being able to utilize information that has been used successfully in the past is a much more viable investment strategy than taking shots in the dark. Keep in mind, when you are given privileged information about stock market tips, where you are in the food chain. Are you one of those privileged few that get top-notch pertinent information on a timely manner, or are you one of the masses that feed into a frenzy and allow the smart money to make the profits?