Dark cloud candlestick: What is a Dark Cloud Cover Pattern?


A pensions & investing Pattern occurs when a bearish candle on Day 2 closes below the middle of Day 1’s candle, as you can see on Chart 1 above. The Harami pattern consists of two candlesticks with the first candlestick being a large candlestick and the second being a small candlestick whose body is contained within the first candle’s… The longer the white candle and black candle are, the more pronounced the reversal will be. The higher the gap up is from the previous candle’s close, the bigger the reversal will be. This shows that the market was unable to sustain that high price level. Determine significant support and resistance levels with the help of pivot points.

bullish candle

  • We’re also a community of traders that support each other on our daily trading journey.
  • When trading the Dark Cloud Cover, we want to see the price first going up, making a bullish move.
  • This candle makes a new high but closes below the middle point of the previous candle, then initiating a potential downward movement.
  • It’s also important to approach trading and investing with caution and to always do your own research before making any decisions.

When the open and close are at the high and the low, or vice versa, then the candlestick will have no shadow above or below the real body. Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

What Is The Dark Cloud Cover Candlestick Pattern & How To Trade With It

As such, it is essential to include indicators as well as technical analysis. Another way to use the Dark Cloud candlestick is to exit long positions when the pattern is formed. In theory, the pattern indicates a reversal to a bearish trend, especially if it appears after an overall price rise.

bearish trend

It is important to note that no trading strategy is foolproof, and traders should always use proper risk management techniques, such as position sizing and stop-loss orders. This can provide valuable information for traders who are looking to enter short positions or close out long positions. To begin, there ought to be an upward trend; meanwhile, the black cloud cover pattern is bullish. The fact that this pattern indicates a change from an upward trend to a downward trend is one of the reasons why traders consider it significant. All information on The Forex Geek website is for educational purposes only and is not intended to provide financial advice.

What is the Dark Cloud Cover Candlestick Pattern?

To https://forexbitcoin.info/ with, you can use simple patterns to observe the market. These simple means include price bars, trend lines, and breakouts. Three outside up/down are patterns of three candlesticks on indicator charts that often signal a reversal in trend. The pattern is composed of a bearish candle that opens above but then closes below the midpoint of the prior bullish candle. Cory is an expert on stock, forex and futures price action trading strategies. The dark cloud cover pattern is an example of cloud cover that indicates a potential reversal in an uptrend.

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Strategy 4: Trading The Dark Cloud Cover With RSI Divergences

The price chart was making higher highs, but the MACD indicator was rejecting them. The first example is from PayPal and the second is from eBay charts. These indicators show the overbought and oversold conditions by diverging and converging. The more the second candle penetrates the first candle , the higher the chance of reversal.


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. Then comes the confirmation candle of red color indicating a confirmed reversal to the bearish trend. The longer this confirmation candle, the higher the chance of a continued up move. It will mean that sellers have now taken charge of the market prices with high supply and are dominating over the buyers. At the end of an uptrend (a “sunny day”), a black candle appears (a “dark cloud“), signaling a trend reversal.

Examples of Dark Cloud Cover

The day following the bearish piercing pattern confirmed the bearish sentiment even more by gapping down with three more bearish candles making new lows. In conclusion, dark cloud cover is a bearish reversal candlestick pattern that can be used in technical analysis to identify potential trend reversals. When this pattern occurs, it suggests that prices may decline in the near future. However, as with any candlestick pattern, it’s important to consider other technical indicators and key levels to confirm the validity of the pattern. One of the telltale characteristics of the dark cloud cover candlestick pattern is a large black candle that forms a dark cloud over the top of the candle from the previous day. Double candlesticks forming a bearish reversal pattern is known as the Dark Cloud Cover Candlestick Pattern.

Here are the important pointers to consider before placing a trade on the dark cloud cover candle. The content on this website is provided for informational purposes only and isn’t intended to constitute professional financial advice. Trading any financial instrument involves a significant risk of loss. Commodity.com is not liable for any damages arising out of the use of its contents. When evaluating online brokers, always consult the broker’s website.

Definition of ‘Dark Cloud Cover Candlestick’

The best average move 10 days after the breakout belongs to dark cloud cover with upward breakouts in a bear market. The best performance rank after 10 days is 19th, which is quite good. I like the name, dark cloud cover, but have trouble remembering it when I am searching for candles.

The Bearish Dark Cloud Cover pattern can be used by forex traders skilled in this method of technical analysis to help signal a trend reversal to the downside. Like its counterpart, this candlestick chart pattern is only a moderately reliable market indicator of a possible future reversal in price action to the downside. This is the indication that the bull run is over and a bearish down move might be starting. The appearance of a dark cloud cover indicates the possibility of a weakness in the uptrend. The pattern comprises a bearish candle that opens above the midpoint of a bullish candle but closes below the level.

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Since this pattern is compounded by one candle, many traders would combine this pattern with an indicator to have more confirmation when it comes to open a position. The first candlestick in this pattern must be supportive of the uptrend. In other words, it must be a bullish a white candlestick with a large real body. The second candlestick should be a bearish black candlestick that gaps up at the open above the high of the first candlestick, giving an indication of continued bullishness. However, the candlestick reverses and closes well into the real body of the first candlestick, signaling a strong change in sentiment. The pattern is more reliable if the second candlestick closes well below the middle of the real body of the first candlestick.

bearish trend

If the second candle closes below the previous candle’s open, you have a Bearish Engulfing pattern, not a Dark Cloud Cover pattern. Alternatively, you can place the target level at the recent areas of resistance/support. On the other hand, you can go for a more comprehensive approach that combines volatility with channels and candlesticks. There is a high volume of trading during the formation of both candles.

In 2011, Mr. Pines started his own consulting firm through which he advises law firms and investment professionals on issues related to trading, and derivatives. Lawrence has served as an expert witness in a number of high profile trials in US Federal and international courts. The Bearish Engulfing pattern is a two-candlestick pattern that consists of an up candlestick followed by a large down candlestick that surrounds or “engulfs” the… Confirmation of the pattern is achieved when another black candle, of smaller size, forms after the second candle.

After the new high, the market is expected to close lower than the bullish candle’s midway point. The pattern’s bearish implications are further strengthened if the next candle also opens lower than the closing price of the down candle. The length of the candlestick is an essential factor that must be considered when calculating the amount of force required to accomplish the reversal. Additionally, it is imperative that you use other technical indicators to validate the signals that are being generated by this pattern.

The first candle is green and has a larger than average body. The second candle is red and opens above the high of the prior candle, creating a gap, and then closes below the midpoint of the first candle. The Three Black Crows pattern is the bearish counterpart of the Three Advancing White Soldiers pattern.


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