Some candlestick price patterns are well known like shooting stars, hammer reversal bars, and engulfing bars. However, some of the less well known candlestick price patterns are worth noting for reading price charts. This is particularly helpful for when you are a managing a position on the longer term charts. Two patterns we are discussing today and tomorrow are the piercing pattern and the dark cloud cover. So, first let’s look at the piercing pattern for today with an example of how this looks from Apple’s price charts.
The piercing pattern described
The piercing pattern is a candlestick pattern used in trading to show that a downtrend might be ending and the price could start going up. It has two candlesticks. It is particularly useful for when assessing whether a downtrend is about to come to an end. The pattern is subtle and easily overlooked, so this is what to specifically look for. Note the gap that is needed for the second candlestick patter.
- Candlestick 1: The first candlestick in the pattern is a bearish candlestick, indicating selling pressure. It represents a continuation of the existing downtrend and opens near or above the previous candlestick's close
- Candlestick 2: The second candlestick is a bullish candlestick, which opens lower than the previous candlestick's close. Note: There is a price gap between the close of the first candlestick and the open of the second candlestick. So, intraday it would look like the bears are taking prices to even lower lows. However, the tide changes with the second candlestick.
- Close of Second Candlestick: The crucial aspect of the piercing pattern is come with the second candlestick as it must close at least halfway into the real body of the first candlestick. In other words, the second candlestick's closing price is significantly higher than the first candlestick's midpoint.
The piercing pattern on the charts
Take a look here for a market example of what candlestick 1 and candlestick 2 from the Apple Weekly chart should look like.
