Piercing Pattern candlestick pattern

The Piercing (or Piercing line) pattern is a two-candlestick reversal pattern not often observed in candlestick chart analysis. This pattern typically signals a potential bullish reversal in a downtrend.

The 1st candlestick has a relatively long body, indicating substantial selling pressure during the trading timeframe. The long lower shadow of the piercing line (the 2nd candlestick) suggests that bulls have entered the market, pushing the price significantly higher from the opening. The ability of the second candlestick to to extend deep into the territory of the previous bearish candlestick indicates that buying interest has intensified and may lead to a change in the prevailing trend.

The Piercing line pattern can be confused with a few candlestick patterns, such as the Dark Cloud Cover and Bullish Engulfing patterns. The Bullish Engulfing pattern also consists of two candlesticks and indicates a potential reversal. The key difference is that the second candlestick completely engulfs (covers) the body of the first candlestick in an engulfing pattern, whereas in a piercing line pattern, the second candlestick only needs to close at least halfway into the body of the first candlestick.

The Piercing line and Dark Cloud Cover are both candlestick patterns used in technical analysis to identify potential trend reversals: The Piercing Line pattern is associated with a downtrend and features a bullish reversal, while the Dark Cloud Cover pattern is associated with an uptrend and signals a potential bearish reversal. The candlesticks have the same structure, but opposite colors. In the Dark Cloud Cover the first candlestick is a long green one and the second - red.

Construction

1st

• appears as continuation of downtrend
• long red body

2nd

• green body
• open price in gap with 1st candlestick close price
• close price in middle point of 1st candle body or higher^①

Traders should use it in conjunction with other tools and indicators for a more comprehensive analysis.

This candlestick pattern can be used as an indicator to enter a long position or exit the short one. Stop-loss orders can be placed below the lowest price of the 1st candlestick (not trading advice).