A number of Candlestick chart patterns consist of two individual Candlesticks that result in specific interpretations that depend on how they arise.
The Bearish Dark Cloud Cover candlestick pattern is one such two candlestick pattern that forms a bearish reversal signal. This pattern is the mirror opposite of the Bullish Piercing Line Candlestick reversal chart pattern.
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.
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.
The Dark Cloud Pattern Characteristics
The Bearish Dark Cloud Cover Candlestick chart pattern is a bearish reversal pattern consisting of a two day candlestick formation.
The two candlesticks that make up this pattern consist of a bullish white candle observed on the first day and a bearish black candle seen on the second day.
The first candle of the Bearish Dark Cloud Cover Candlestick chart pattern is generally a long white candle that tends to come as the forex market is trading towards the end of a prolonged move to the upside.
The second candle consists of a black candle which gaps above the previous day’s high of the white candle and then falls and closes below the midpoint of the white day’s body.
The Psychology of the Bearish Dark Cloud Cover Pattern
The Bearish Dark Cloud Cover Candlestick chart pattern is named this way because the second day’s candle closing price falls below the midpoint of the first day’s candle, causing a “Dark Cloud” to cover the center point of the white candle.
Furthermore, the lower the currency trades after falling below the mid point, the stronger the implied bearish move signaled by the appearance of this chart pattern will be.
Basically, the Bearish Dark Cloud Cover Candlestick chart pattern acts as a downside reversal pattern that will generally form at the end of a prolonged up trend or during a corrective rally in a downtrend.
The exchange rate for the currency pair gaps higher on the opening of the second day only to attract more selling interest. This thereby causes the currency pair’s rate to decline sharply to fill the gap.
The bulls have been in control until the second day of the Bearish Dark Cloud Cover pattern, when selling interest is sparked by the gap up as the bears quickly move in to take advantage of the higher rates which contributed to some of the previous day’s losses.
Moreover, the success the bears have had in selling down the currency pair, and the fact that its exchange rate has closed below the mid point of the previous day’s white candle fuels even more bearish sentiment for the pair.
The Bearish Dark Cloud Candlestick chart pattern has similarities to the Bearish Engulfing pattern, the Bearish Thrusting pattern and the Bearish Meeting Lines pattern.
How a Trader Takes Advantage of the Bearish Dark Cloud Cover Pattern
The Bearish Dark Cloud Cover Candlestick chart pattern would typically be traded by shorting the market on the second day after the currency pair’s rate has declined past the middle point seen on the white candle day.
Naturally, forex traders need to remember that the position will have inherent risk, since the Bearish Dark Cloud Cover Candlestick chart pattern is only a moderately reliable downside reversal pattern.
As a result, those traders who are more adverse to risk might want to wait for further confirmation of the new downward trend indicated by the appearance of a Bearish Dark Cloud Cover Candlestick chart pattern by waiting for a long black candle day to initiate a short position.