It denotes a trend reversal and hints at a short-term upward advance. There are various gap forms, but here we have what is called an exhaustion gap – sellers have pushed too hard on prices, but volume dried up quickly, and buyers stepped in to reverse the trend. There are two candles in the structure of a bearish piercing pattern.
- The piercing line candlestick represents a continuation of a bullish reversal pattern.
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- The piercing line is a bullish reversal candlestick pattern found at the end of a bearish trend that helps traders find potential reversal zones.
- When the real body of one candlestick completely engulfs the real body of the preceding candlestick, this is known as an engulfing pattern.
- Second, on the left, there is a bearish candle that often has a large body and small upper and lower shadows.
The other approach is to set a sell-stop trade at the lower side of the piercing pattern. If the piercing pattern fails, the sell-stop trade will be initiated and the downward trend will continue. When combined with other technical indicators and analysis, the piercing line can give you a clear picture of what the market is doing and where it may be headed. The piercing pattern is a useful tool for traders who are attempting to make sense of the movements in the market, despite the fact that no pattern is flawless.
Piercing line vs dark cloud cover
If the bullish breakout happens, there is a possibility that the buy-stop trade will be initiated. Gordon Scott has been an active investor and technical analyst or 20+ years.
- Several analysts see the formation of this pattern as a re-emergence of bullish market sentiments.
- The piercing pattern is a useful tool for traders who are attempting to make sense of the movements in the market, despite the fact that no pattern is flawless.
- A piercing pattern is typically only a potential signal for reversal so following a piercing pattern a trader would want to watch for a breakaway gap.
- When this happens at the market open, enthusiastic buyers may step in and reverse the price action right from the beginning of the trading day.
Since the piercing line is a trend reversal pattern, you would want to do whatever possible to confirm that the reversal is about to occur. In that sense, the most effective way to do so is to use trend reversal technical analysis indicators such as RSI, Stochastic, and MACD. In this formation, the second candlestick validates that the selling pressure ends and buyers are taking control back. That said, the piercing line candle pattern is not the most accurate chart pattern of all, and, therefore, it should not be traded by itself.
How to Trade Forex Using the Piercing Line Candlestick Pattern – Strategies and Examples
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The piercing line candlestick pattern is an indication of a bullish reversal that develops near the end of a downtrend. As bulls enter the market and drive prices higher, it frequently results in a trend reversal. The Piercing Line is one of the technical analysis’s most popular candlestick patterns. It is a bullish reversal pattern that forms when the opening price is lower than the close of the previous candlestick, but the close of the current candlestick is higher than its opening.
What Does The Piercing Line Pattern Mean?
Strength can be measured by how far above the 50% line the green candle closed. If it had closed above the red body, then we would have had a bullish engulfing pattern, another moderately high-probability prediction of an imminent reversal. Market sentiment has shifted, and in this case, the bulls are on the run. The signal is to go long on the euro, but confirmation from another technical source is always advised.
This pattern is valid since it assists traders in gaining a better understanding of whether the momentum of the market is bullish or bearish. If the market rallies after breaking through a previous low, this indicates that bullish momentum is likely present in the market. Out of all the patterns that technical analysis uses to try and understand markets, the Piercing pattern is one of the more successful. If you’re looking for an effective trading strategy, look no further than the piercing line.
Is the Piercing Line Candlestick Pattern Good for Traders?
To make a piercing line pattern, the second candle must cover only half of the first candle. The piercing line is a bullish reversal candlestick pattern found at the end of a bearish trend that helps traders find potential reversal zones. As a training exercise, review the pricing history of your favourite trading pair and then locate the bullish piercing line pattern. Observe how the market reacted and what the prevailing market conditions were at hand.
In essence, traders use this classical chart pattern to identify the change in the trend and find entry and exit levels. A piercing candlestick pattern forms when the market is already in a downward trend, the opening price is high, and the selling activity is ongoing. The closing price reaches the bottom at the end of the trading session, forming a bearish candle. This bearish candlestick is typically a Marubozu candlestick with no upper or lower shadows. Like many other trend reversal indicators, the piercing line is a lagging indicator and, therefore, should not be traded in isolation. Instead, you need to find other tools and a trading strategy that may help validate the pattern.
What is a piercing line candlestick?
They can be used to enter a trade, exit a trade, or set your target and stop levels. By understanding how to trade piercing lines, you can improve your trading strategy and take advantage of market conditions. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Room. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets. We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade. Stop loss is located below the lowest level of the second bullish candle (if the price breaks this level, the pattern is invalidated, and you switch sides and enter a short-selling position).
It has a close resemblance to a bullish engulfing pattern, which is also a two-candle pattern. A piercing pattern is a two-day, candlestick price pattern that marks a potential short-term reversal from a downward trend to an upward trend. The pattern includes the first day opening near the high and closing near the low with an average or larger-sized trading range. It also includes a gap down after the first day where the second day begins trading, opening near the low and closing near the high.