Dark Cloud Cover
The reversal pattern we are going to study next is the dark cloud cover pattern. This pattern is also composed of two candlesticks and is a top reversal pattern.
It usually appears after an upward trend, and in some cases it may also appear at the top of a horizontal adjustment range. In this pattern, the first day is a strong green real body; the opening price of the second day exceeds the highest price of the first day (that is, it exceeds the top of the upper shadow of the first day), but at the close of the second day, the market closes at a level close to the lowest price of the day, and obviously plunges downward into the interior of the white real body of the first day. The deeper the red real body of the second day penetrates into the green real body of the first day, the greater the possibility that the pattern constitutes a top reversal pattern.
This kind of form in the currency circle is hard to find, so let me show you the picture in the book.
Piercing form
There is a pattern that is the opposite of the Dark Cloud Cover, and it is called the Piercing Pattern. The Piercing Pattern appears in a falling market and is also composed of two candlesticks. The first candlestick has a red body, and the second candlestick has a green body. On the day of the green candlestick, the market opened low, preferably below the previous low of the red candlestick, but then the market pushed the price back up and penetrated deep into the body of the red candlestick.
It is difficult to find the perfect standard for penetration, but it is not difficult to see from the picture that the penetration form can indeed play a reversal role.
Just remember that the green entity must push above the midpoint of the red entity to constitute a more effective bottom reversal signal.
When we encounter a less-than-perfect candlestick pattern, the following two factors can help us evaluate its validity and see whether it has the same technical significance as a more precisely defined candlestick pattern.
(1) Specific circumstances of morphological composition;
(2) The overall market landscape in which it operates.
If the body does not go deep into the first day's body on the second day of the piercing pattern, I usually recommend waiting for further confirmation signals. Assuming that the next candle after the piercing pattern is a green candle, the closing price of the next period exceeds the green body upward, which constitutes a confirmation signal.
