Piercing Pattern

Piercing Pattern Properties

The opposite of Dark Cloud Cover is a Piercing Pattern, sometimes called the Piercing Line formation.

You can see these are a similar set of rules to the Dark Cloud Cover reversal, but turned on their head - this time it’s a bullish pattern in a down-trending market because the bulls come storming back to life on the second day, and take back a good chunk of the losses seen in the previous session.

This all came on the back of a pretty shoddy start to proceedings on the second day. After the first candle, and on the open of the second candle, the bears were by far the happier group, and were dominating things. But then the market experienced strong buying which was sustained into the close, and an open bodied candle was posted.

If on the second session the bulls had kept up the good work and taken us above the open from the first day, and if these gains were sustained into the close a Bullish Engulfing Pattern would have been posted. Many argue therefore that the Piercing Pattern is a “nearly man” Engulfing pattern! Once again I’d echo my sentiments from a few pages back: if you find that a particular pattern works well on your charts, then don’t mind me. Use it! 

Figure 4-8: Anglo American pic; daily candlestick chart; 5 December 2007 - 18 February 2008, showing Piercing Pattern on 21 and 22 January 2008

Ideally the volume characteristics of a Piercing Pattern show a jump in volume on the second candle; in other words the buying that created the green candlestick was proper buying, and not just the result of the bears having a day off.

Piercing Pattern summary

A Piercing Pattern is two candlesticks, the first having a filled real body which is in line with the bearish conditions at the time. A candlestick with an open real body is then posted the next day, closing well into the red real body of the first candle. My personal experience is that Piercing Patterns are so few and far between that I always get a bit of a jolt when I see one. Once again this pattern’s formation relies upon the second candle’s close being well into the filled real body of the candle before it; our Marabuzo line comes into play once more, as a close below the Marabuzo line would mean no Piercing Pattern. This in itself can make these levels an important reference, as we’ll discuss in the next chapter.