Dark Cloud-Piercing Line and Engulfing Candlestick Patterns
Twenty Seventh session of Forex Training
Welcome black to Forex professional training in financial markets.
Dark Cloud-Piercing Line and Engulfing Candlestick Patterns will be discussed in this session.
Dark Cloud Candlestick Pattern
Dark Cloud candle, one of the most important patterns, usually appears at the reversal point of an uptrend.
While trend is on its way up, a significant news causes an abrupt change in direction toward downside followed by a Bearish candle.
The analysis on Dark Cloud candles is based on the last two candles.
If Open and High price of the second candlestick is over Close and High price of the first candle, respectively, then a Dark Cloud candle pattern is formed.
The ideal form of a Dark Cloud candle is when Close price of the second candle is lower than the midpoint of first candle body; also, Open price of the second candle is higher than the High price of the first candle.
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Piercing Line Candlestick Pattern
Piercing Line forms on a downtrend, opposite to the Dark Cloud pattern, it indicates a reversal trend on a decline direction.
Like Dark Cloud, Piercing Line pattern consists of two candles.
A Piercing Line may form when a significant news or event change the downward direction of the trend to an upward one.
The Open and Low price of the second candle is lower than Close and Low price of the first candle, respectively.
The ideal Piercing Line pattern is developed whenever the Open price of the second candle is lower than the Low price of the first candle, also whenever the Close price of the second candle is above midpoint of the first candle whole body.
In Dark Cloud and Piercing Line, any of the ideal conditions indicates an appropriate price, trade can be ordered for a successful trade.
Some examples on MT4 would be beneficial. A Piercing line candle has formed in a downward trend.
Open price of the second candle is not under the Close price of the first candle, thus, one of the ideal conditions is not fulfilled.
Close price of the second candle is higher than the middle of the first candle body, consequently other condition of an ideal Piercing Line pattern has been fulfilled.
The entry price for the Buy order should have been above the High price of the second candle, also SL was Low Price of the second candle and TP could have been 122 pips higher than the entry price since entire length of the second candle equals to 122 pips.
Market price has increased followed by a downfall, which eventually went up to the desired price.
Another example illustrates a Dark Cloud pattern in an uptrend, in which Open price of the second candle is higher than Close price of the first candle, while High price of the first candle is lower than High price of the second candle.
If a trader checks the ideal conditions, he/she will figure out that the length of the first candle is around 38 pips.
Second candle Close price is lower than middle of the first candle body, thus, one of the ideal conditions is fulfilled.
If the candle information is considered, Open price of the second candle is 98.80, while High price of the first candle is also 98.80.
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Open price of second candle is equal to High price of the first candle, thus, it was a great opportunity for traders to place a Sell order.
Trader can zoom out to find more patterns on the chart, followed by zooming in for further scrutiny.
In another example, a pattern can be checked, which indicates that it is not a Dark Cloud pattern after zooming on the given example.
Next example indicates that there was a Piercing Line on a downtrend with requisites of a Piercing Line pattern.
The order price could be placed on the High price of the second candle with TP price of 100 pips higher than the entry price of the order.
Piercing Line and Dark Cloud candles are important and effective patterns that must be considered by traders.
Bearish Engulfing Candlestick Pattern
Bearish Engulfing is an important candle that would be formed on a reversal point of an uptrend.
It consists of two candles, in which Close price of the second candle is lower than the Open price of the first candle.
The Low of the second candle must be lower than Low of the first candle.
The ideal conditions for Bearish Engulfing are as follows:
- Open price of the second candle is higher than Close price of the first candle
- High price of the second candle is above High of the first candle
- Close price of the second candle is below Open price of the first candle
- Low price of the second candle is lower than Low of the first candle
The second candle covers all price points of the first candle, hence why it is called Engulfing.
Bullish Engulfing Candlestick Pattern
Bullish Engulfing pattern indicates a reversal point on a downward direction which includes two candles.
Its requisites are as follows: High of the second candle is above High of the first candle, plus Close price of the second candle must be higher than Close price of the first candle.
The ideal conditions for this pattern are as follows:
- Open price of the second candle is lower than Close price of the first candle
- High price of the second candle is above High of the first candle
- Close price of the second candle is higher than Open price of the first candle
- Low price of the second candle is lower than Low of the first candle
There are multiple useful examples on a chart.
A Bullish Engulfing candle has formed on a downward trend, in which High of the second candle is above High price of first candle; Close price of the second candle is over the Open price of the first candle.
It was thought the market would augment to 123 pips higher. The second candle is a Long candle, too. It was a great point to place a Buy order.
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Another example shows a Bearish Engulfing candle with ideal conditions that are followed by a downtrend.
Another Engulfing pattern has formed that was followed by a downward direction.
Another Bearish Engulfing candle was followed by a sharp decline.
The other Increasing Engulfing candle on a downtrend followed by an uptrend direction.
The example of a Bullish Engulfing candle with all conditions for an ideal condition, the reversal point on a downward trend.
There are several examples, especially on Commodity market, such as an Oil chart. Another Engulfing pattern is detectable on this chart.
A trader can identify many patterns in a chart easily after studying any pattern thoroughly.
That concludes this session, until next time and another session take care.