The Piercing Pattern
Piercing and Dark-Cloud Cover Patterns
The Piercing pattern is a bulling trend reversal or bottom reversal pattern that appears towards the end of a downtrend. It is the opposite of the dark-cloud-cover pattern that appears in an uptrend. As the piercing pattern is a bullish trend reversal pattern, the presence of an existing down trend is a prerequisite. Like the dark-cloud cover pattern, the piercing pattern is a two-candlestick pattern. The first candlestick must be a dark candlestick with a large real body and the second candlestick should be light in color and should below the low of the previous candlestick. The second candlestick must close above the middle of the real body of the first candlestick, with the deeper it pierces the first candlestick the more significant the pattern becomes. The pattern also becomes more significant if the two candlesticks that form the pattern are Marubozu candlesticks with no upper or lower shadows.
As with the dark-cloud cover pattern and most trend reversal patterns, the piercing pattern is more reliable depending on where it appears on the price chart in relation to trendlines, pivot point, and support and resistance lines, etc. A piercing pattern at or near a lower trendline or a support line can be used as confirmation that the test of the trendline is more likely to fail. The lowest point of the piercing pattern can also be used as a support line, and a possible location for a protective stop loss.
The Hanging Man and Hammer candlestick patterns are related trend reversal patterns that may appear at the end of an uptend or downtrend respectively. This is a single candlestick pattern that with a short real body, little or no upper shadow and a long lower shadow that must be at least twice as long as length of the real body. The color of the candle is not import, only its location in the current trend.
The Hammer pattern is called a takuri in Japanese, which means testing the water for its depth. This is the bullish version of the pattern. A bearish ...
The Evening Doji Star
Star patterns are trend reversal patterns that consist of three candlesticks, with the middle candles stick forming the star. A star is a candlestick with a short real body, like a doji or a spinning top, that gaps away from the real body of the preceding candlestick. There are three basic star patterns: the morning star, which appears in a downtrend; and the evening star and the shooting star, which appear in an uptrend.
The morning star and the evening star have a doji or a spinning top as the second candle...
Three Black Crows
The Three Black Crows pattern is the bearish counterpart of the Three Advancing White Soldiers pattern. It is a reversal pattern that consists of three bearish candlesticks that should come into consideration when it appears within an established uptrend, where it indicates a weakness in the uptrend and, potentially, the beginning of a down trend.
Each of the three candlesticks in the Three Black Crows pattern should be relatively long bearish candlesticks with little or no lower shadows. Each of the candlesticks in this pattern should mark a steady decline in ...
The Engulfing pattern is a reversal candlestick pattern that can appear at the end of an uptrend or at the end of a downtrend. The first candlestick in this pattern is characterized by a small body and is followed by a larger candlestick whose body completely engulfs the previous candlestick's body.
The colors of the candlesticks that make up the engulfing pattern are important. When the engulfing pattern appears at the end an uptrend, it is a bearish reversal signal and indicates a weakness in the uptrend and ...
Continuation patterns indicate that there is a greater probability of the continuation of a trend than a trend reversal.. These patterns are generally formed when the price action enters a consolidation phase during a pre-existing trend. During the consolidation phase, the trend appears to change; however, the continuation of the preceding trend is more probable.
Some of the common continuation patterns include the cup and handle pattern, flags and pennants, symmetrical triangles, ascending triangle and desc...
Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position. Generally, trend reversal patterns indicate that a support level in a downtrend or a resistance level in an uptrend will hold and that the pre-existing trend will start to reverse. These patterns allow you to enter early in the establishment of the new trend and are usually result in very profitable trades.
The common reversal patterns include the double tops and double bottoms, triple tops and triple bottoms, broadening tops and broadening bottoms, ...