The Piercing pattern is one of the bullish trend reversal patterns or the downward trend reversal pattern that appears towards the end of the downtrend. This is the opposite of the dark – cloud – cover pattern that appears in up trend. Because the piercing pattern is a bullish trend reversal pattern, so it requires a downtrend. Like the dark – cloud – cover pattern, the piercing pattern is a two – candlestick pattern.
The first candlestick must be a dark or bearish candlestick with a real big body candle and the second candlestick must be light or bullish and should be below the previous low candlestick. The second candlestick should be closed at least above the middle level of the real body of the first candlestick. With the size of the second real body candle in the first candlestick body willing to cover it will be more significant pattern. This pattern of piercing also becomes more significant if the two candlesticks are forming the pattern is Marubozu candle with no upper or lower shadow.
Like the dark – cloud – cover pattern and most existing trend reversal patterns, this piercing pattern is more reliable but depends on where the pattern appears on the price graph in terms of trend line, pivot level, support and resistance lines and others. The pattern of piercing at or near the trend’s lower line or support trend line or support line can be a confirmation that trend line test is more likely to fail. The lowest level of the piercing pattern can also be used as a support line and can also be a level for stop loss in order not to lose too much.
It should be remembered that the appearance of this piercing pattern is only present as the downtrend. So the effect of this piercing pattern is bearish reversal. If the appearance of a pattern similar to piercing is called a dark – cloud – cover pattern that appears when the trend rises and has a bearish reversal effect.