Reading candles
Piercing line and dark cloud cover
Two candles: a strong move, then a strong move the other way that closes past the midpoint of the first body without fully covering it.
Tested more than once and no dependable profit survived costs.
Tests on stocks, index futures and EURUSD mostly find no reliable profit once costs are counted; the few positive results are in stock markets and depend on the exit rule. A pattern describes what price just did. It is not a forecast.
What it is
Piercing line (bullish) follows a falling candle with a rising one closing above its midpoint. Dark cloud cover (bearish) mirrors it. A weaker cousin of the engulfing bar.
What it suggests
The second candle took back most of the first candle's move.
How to check it
Check that the second close passes the midpoint, and note the level it formed at.
Common mistakes
- Treating any partial reversal as this pattern.
How we will test it
On public price history, never on anyone's account. Until it is done, the note above is all we can honestly say.
- Cases: a piercing line or dark cloud at a swing level
- Measure: share of cases where price closes beyond the pattern's far side first
- Window: next 5 candles
- Compared with: random bars with similar range
Sources
- Marshall, Young and Rose (2006), Candlestick technical trading strategies: can they create value for investors? Journal of Banking & Finance 30(8) (citation and headline finding only)
- Duvinage, Mazza and Petitjean (2013), The intra-day performance of market timing strategies and trading systems based on Japanese candlesticks, Quantitative Finance 13(7) (abstract or primary page read)
- Fock, Klein and Zwergel (2005), Performance of candlestick analysis on intraday futures data, Journal of Derivatives 13(1) (citation and headline finding only)
- Orquin-Serrano (2020), Predictive power of adaptive candlestick patterns in forex market: EURUSD case, Mathematics 8(5) (abstract or primary page read)
- Lu, Chen and Hsu (2015), Trend definition or holding strategy: what determines the profitability of candlestick charting? Journal of Banking & Finance 61 (citation and headline finding only)
Related lessons
Written in our own words. Education only, not financial advice.