8. Piercing Line (Dark Cloud Cover)

A Piercing Line or Dark Cloud Cover pattern is one that is formed by 2 candlesticks.  The Piercing Line and Dark Cloud Cover are the bullish and bearish variants of the same 2 candlestick pattern respectively.

For a Piercing Line pattern, the first candle is bearish, and the second candle opens below the low of the first candlestick and closes above the midpoint of the first candle.

For a Dark Cloud Cover pattern, the first candle is bullish, and the second candle opens above the high of the first candlestick and closes below the midpoint of the first candle.

These patterns suggest that some traders are disappointed.  For the Piercing Line pattern, since the second candle opened with a gap down, it gives an initial sentiment that the strong bearish trend will continue.  However, the bearish trend did not continue, and even retraces half of the bearish gains in the first bar.  It suggests a strong bullish reversal.  Similarly, in the Dark Cloud Cover pattern, the opening gap up gives an initial hope that there is a strong bullish trend, however, the lower close disappointed the traders with long positions, suggesting a strong bearish reversal.

When one encounters the Piercing Line pattern, we can use it to identify major bullish reversals, especially after a bearish or horizontal period.  Hence when seeing the Piercing Line pattern, one can possibly buy in with the bullish reversal in play.

When one encounters the Dark Cloud Cover pattern, we can use it to identify major bearish reversals, especially after a bullish or horizontal period.  Hence when seeing the Dark Cloud Cover pattern, one can possibly sell with the bearish reversal in play.