The Dark-Cloud-Cover candlestick pattern is a bearish trend reversal pattern or upside reversal pattern that appears in the uptrend and indicates a potential weakness in the ascending trend. This is a two candlestick pattern and is an anti thesis of piercing patterns. Since this is a bearish trend reversal pattern, the Dark-Cloud-Cover pattern only applies if it appears in an ascending trend.
The first candlestick in this dark-cloud-cover pattern must be a bright (bullish) candlestick with a large real body. The next candlestick or second candle should be a dark candlestick whose open level is above the first high candlestick level but closes well into the first real candlestick body.
This dark-cloud-cover candle pattern signifies a change in sentiment. This pattern is more reliable if the second candlestick closes below the first candlestick. The deeper the penetration of the second candlestick becomes more significant. It also becomes more significant if the two candlesticks that form the dark-cloud-cover pattern are Marubozu candles with no shadow up or down.
Like most trend reversal patterns, the dark-cloud-cover pattern becomes more reliable depending on where the pattern appears on the price chart, such as in the trend line area, pivot level, support line, resistance line and others. The dark-cloud-cover pattern at or near the trend line or resistance line can be a confirmation that trend line testing is more likely to fail. The high level of the dark-cloud-cover pattern can also serve as a line of resistance and location that is fitting and most likely for stop loss placement.
It should be remembered that the appearance of this dark-cloud-cover pattern is only in an upward trend. So the effect of the appearance of dark-cloud-cover pattern is bearish reversal. If the appearance of a dark-cloud-cover-like pattern is called a piercing pattern that appears when the downtrend and has a bullish reversal effect.