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A bearish candlestick after the dark cloud cover usually confirms the occurrence of the pattern and trend reversal. The dark cloud cover is a pattern or single that is observed within technical analysis. Technical analysis is a discipline that is applied by security traders who observe patterns within historical trading data and attempt to analyze securities with this data.

The dark cloud cover is a bearish reversal candlestick pattern whose presence indicates a probable reversal to a downward trend. It starts with a bullish (green) candle followed by a bearish (red) candle that yields a new high. Our “Understanding Candlesticks” course provides students with a comprehensive introduction to candlestick charting and analysis. Students will learn the visual language of candlestick patterns and their significance in predicting market trends and price movements.

Dark Cloud Cover Candlestick Pattern

Those first 2 candles should have long real bodies with little to no wicks. Basically, the Bearish Dark Cloud Cover Candlestick chart pattern acts as a downside reversal pattern that will generally form at the end of a prolonged up trend or during a corrective rally in a downtrend. The second candle consists of a black candle which gaps above the previous day’s high of the white candle and then falls and closes below the midpoint of the white day’s body. The first candle of the Bearish Dark Cloud Cover Candlestick chart pattern is generally a long white candle that tends to come as the forex market is trading towards the end of a prolonged move to the upside. The two candlesticks that make up this pattern consist of a bullish white candle observed on the first day and a bearish black candle seen on the second day. Well, traders can also use other technical tools to confirm the pattern or wait for a confirmation by the chart itself with another green candle closing above the high of the pattern formed.

The first example is from PayPal and the second is from eBay charts. Notice it didn’t close beyond the lows or the open of this candle. Bulls are unable to hold prices higher, while demand is unable to keep up with the building supply.

Dark Cloud Cover: A Trader’s Guide

Traders might also look for a confirmation in the form of a bearish candle following the pattern. The price is expected to decline following the Dark Cloud Cover, so if it doesn’t that indicates the pattern may fail. Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading.

• When you spot the Dark Cloud Cover pattern on a Japanese candlestick chart, expect a potential bearish reversal.
• Last and the 5th thing, the bearish candle should close below the midpoint of the bullish candle from the previous day.
• The pattern suggests that after a period of selling pressure, buyers have gained control and are pushing prices higher.
• If you are interested in reading more about Dark Cloud Cover candlestick patterns, you must first login.

Just 60% of the time, price changes direction from up to down in a bull market. However, once the turn is
made and price breaks out, price trends, ranking 22nd out of 103 candle patterns, where 1 is best. When trading this pattern, it advisable to place your stop loss order above the preceding swing high. Since the trade is a probable start of an extended downtrend, one can set several target levels. Traders can use this candlestick pattern to trade the usual trending markets as well as ranging markets. In a piercing line pattern, the second candle usually covers just a small part of the bearish candle.

Technical Analysis

When you spot the Dark Cloud Cover pattern on a Japanese candlestick chart, expect a potential bearish reversal. Our chat rooms will provide you with an opportunity to learn how to trade stocks, options, and futures. You’ll see how other members are doing it, share charts, share ideas and gain knowledge. Last and the 5th thing, the bearish candle should close below the midpoint of the bullish candle from the previous day.

In this guide to understanding the Dark Cloud Cover Candlestick Pattern, we’ll show you what this chart looks like, explain its components, teach you how to interpret it, and provide examples. The Dark Cloud Cover pattern can be summarized by imagining a dark cloud overtaking the sky on a bright, sunny day. The fact that this candle opens higher, but erases more than half of the previous candle’s gain, is what gives it a bearish character and also its name.

Marubozu Candlestick In Forex

Alternatively, traders may exit the following day if the price continues to decline (pattern confirmed). If entering short on the close of the bearish candle, or the next period, a stop loss can be placed above the high of the bearish candle. The first candlestick in the Dark Cloud Cover pattern must be supportive of the uptrend. In other words, it must be a bullish, light-colored candlestick with a large real body. The second candlestick should be a bearish, dark-colored candlestick. This candlestick must gap up at the open above the high of the first candlestick.

My book,
Encyclopedia of Candlestick Charts,
pictured on the left, takes an in-depth look at candlesticks, including performance statistics. Alternatively, you can place https://forexhero.info/mtrading-overview/ the target level at the recent areas of resistance/support. The dark cloud cover is basically when the second candle has closed below the 50% mark of the first candle.

How to Trade the Dark Cloud Cover Candlestick Pattern

We took ONGC on a daily time frame and it is visible also we have marked that on 28th May 2015, the Dark-Cloud Cover pattern was formed. As we have discussed earlier the pattern satisfies all the conditions. Soon after which the prices fell significantly by more than 30%, so if we would have initiated a short position then we could have captured a big move. The bearish indication of the dark cloud cover is strengthened if the third candle in the sequence closes below the low of the first candle. From that point, price may steadily fall without significant upward retracement for some time.

Because the bearish engulfing pattern would close beyond the open of the first candle. Dark Cloud Cover is a bearish candlestick reversal pattern, similar to the Bearish Engulfing Pattern. At the end of an uptrend (a “sunny day”), a black candle appears (a “dark cloud“), signaling a trend reversal. Dark Cloud Cover is a two-candlestick pattern that is created when a down (black or red) candle opens above the close of the prior up (white or green) candle, then closes below the midpoint of the up candle. When traders see that at the open they might be inclined to think it part of the gap up patterns and go bullish. Unless they caught it the day before and sold at the open, more than likely are going to be disappointed.