Candlestick chart patterns fall into two principal categories: continuation patterns and reversal patterns. Reversal patterns can be either moderately reliable or – as in the case of the Bullish and Bearish Kicking patterns – they can be very reliable.
Two patterns which have only a moderate level of reliability in signaling a reversal in the forex market consist of the Bullish Piercing Line Candlestick chart pattern and its opposite the Bearish Dark Cloud Cover pattern.
The Bullish Piercing Line Candlestick Chart Pattern Characteristics
The Bullish Piercing Line Candlestick chart pattern is a reversal pattern consisting of a two day candlestick formation. The two candles that make up this pattern consist of a bearish black candle on the first day and a bullish white candle on the second day.
The first candle of the Bullish Piercing Line pattern is generally a long black candle seen towards the end of a prolonged downtrend.
The second candle of the pattern consists of a white candle which gaps below the low of the black candle seen the previous day and then closes above the midpoint of the body of that preceding black candle.
The Psychology of the Bullish Piercing Line Candlestick Chart Pattern
The Bullish Piercing Line is so called because the second day’s candle closes above the midpoint of the first day’s candle, thereby “piercing” the middle point of the black candle.
The higher the currency pair then trades after piercing the middle point, the stronger the implied bullish move will tend to be.
Basically, the Bullish Piercing Line reversal pattern will generally form at the end of a prolonged downtrend or during a pullback in an uptrend. The currency pair gaps lower on the opening of the second day only to find buying interest and rally sharply to fill the gap.
The bears have been in control until the second day of the pattern, when buying interest is sparked by the gap down and the bulls quickly move in to restore some of the previous day’s losses.
Moreover, the success the bulls have had in maintaining prices higher and the fact that the currency has closed above the mid point of the previous day’s black candle fuels even more bullish sentiment.
The Bullish Piercing Line pattern has similarities to the bullish Engulfing pattern, the On and In Neck pattern, the Thrusting pattern and the Meeting Lines pattern.
How a Trader Takes Advantage of the Bullish Piercing Line Pattern
The Bullish Piercing Line Candlestick chart pattern would typically be traded by a forex trader by going long on the second day after the currency has rallied past the mid point of the black day.
Of course, taking action based on this pattern without additional confirmation might be a risky endeavor since the pattern’s reliability is moderate rather than high.
Accordingly, a forex trader more adverse to risk might want to wait for further signals of the suggested upward reversal in the overall down trend by waiting for a long white candlestick day to initiate a long position in the market.