It shouldn’t be your only trading strategy, because there are plenty of patterns that form at the same time that show just as many encouraging results. The buyer pressure is so much, they’ve essentially absorbed the sellers from moving any lower and pushed the price back up above 50% of the previous trading sessions candlestick. All information on The Forex Geek website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, do not represent a guarantee.
- The pattern includes the first day opening near the high and closing near the low with an average or larger-sized trading range.
- This means that Piercing Pattern can only indicate trend reversals for short periods.
- Generally, other technical indicators are used to confirm a buy signal given by the Piercing Pattern (ie, downward trendline break).
- The red one, the green, or even both, showing even more rejection from the downside.
- When the oscillators like the RSI or Stochastics are showing a bullish divergence, the Piercing pattern can perhaps become more meaningful.
- Whereas the piercing pattern pushes the lower price past 50% of the previous trading sessions candlestick, and therefore, shows intention behind a possible change in trading direction.
The second candle shows a gap higher from the first candle’s closing price to the second candle opening price. When the Piercing Pattern precedes the breakaway gap, it is considered a possible trend reversal. It can indicate a potential reversal from the bearish to a bullish pattern in a downtrend and reversal from bullish to bearish in an uptrend.
Trading the Evening Star candlestick pattern
As mentioned earlier, the Piercing Pattern signals short-term reversals. Therefore, for finding profit-targets, traders can use the Piercing Pattern with other indicators. To trade the Piercing candlestick pattern it’s not enough to simply find a pattern with the same shape on your charts. It’s a reversal pattern because before the Piercing appears we want to see the price going down, thus it’s also a frequent signal of the end of a trend. As mentioned previously, the piercing pattern does require further confirmation before entering into a long trade. In this example, the RSI oscillator has been used as additional confirmation of a reversal.
What makes a pattern valid is not just the shape, but also the location where it appears. Bullish Engulfing Pattern is typically viewed as being more bullish than the Piercing Pattern because it completely reverses the losses of Day 1 and adds new gains. Gordon Scott has been an active investor and technical analyst or 20+ years.
How reliable is the piercing line?
Being a bullish candlestick pattern, Piercing Pattern prompts a trend reversal when the bulls push prices high. A Piercing line candlestick pattern is a two-day bullish candlestick reversal pattern that appears in a downtrend. It signals a potential short term reversal from downwards to upwards. It consists of two major components, a bullish candle of day 2 and a bearish candle of day 1.
A bull market is one in which prices are rising, encouraging buying. “Bullish” can be used to describe an entire time period for a market or simply the situation in which the price of an asset or derivative instrument is temporarily on an uptrend. Personally, the bullish engulfing pattern has more strength behind it and therefore plays out more often. You want to place your entry 1 or 2 pips higher above the previous session’s candlestick pattern’s high. If you’ve followed any of our other candlestick pattern guides you’d probably be able to guess how we’d do this. The theory behind a piercing pattern is that the short sellers have been quickly and aggressively halted and reversed by an influx of buyers.
Piercing Pattern sell strategy
As you can see with the trade it continued to go higher from the buying pressure signalled by the piercing line candlestick pattern. For you to find a piercing line candlestick pattern they normally form at the end of downtrends. The Piercing pattern can be seen as a classic reversal pattern due to its look.
However, they do still occur and in forex particular – the gap down is not needed to provide a valid piercing line candlestick pattern. Stop levels can be placed at the recent low (low of the bullish piercing pattern candle), while the take profit (limit) can be identified using Fibonacci extensions or price action. An engulfing pattern is a 2-bar reversal candlestick patternThe first candle is contained with the 2nd candleA bullish… Whereas the piercing pattern pushes the lower price past 50% of the previous trading sessions candlestick, and therefore, shows intention behind a possible change in trading direction. According to Tom Bulkhowski, based on his tests he found that the piercing line candlestick pattern achieved an average of 64% accuracy.
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