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The bearish piercing line candlestick pattern is basically the opposite of the dark cloud cover candlestick pattern.
It takes place after a long downward trend in price. The first candle
of this double candle pattern has a black body and can have wicks at
either end. The candle for the second day is a white bodied candle that
begins low, either at or below the first day’s low finish. However, it
rallies and ends up increasing in price to finish the day at or around
the first candle’s midpoint.
This pattern is important to recognize because it marks the end of a downward trend and, most likely, the beginning of a climb in prices. If you have been wondering when the bearish pattern was going to end, this is likely your answer. However, it is imperative that the closing price on the second day is at or above the middle point of the first day’s body. If it isn’t, this may not be a complete reversal, but merely a minor fluctuation. This halfway point is key to understanding the piercing line candlestick pattern.
Your Next Move
What does this mean for you as an investor? When you see a piercing line candlestick pattern, your next move should be made with the assumption that there is going to be an upward trend in prices in the very near future. Basically, the sellers are backing down and the buyers are beginning to gain interest. This pattern is one of the most reliable indicators of a reversal and it tends to attract new buyers, which buoys the upward trend even further. If you buy now, you are likely ‘getting in on the ground floor’ with nowhere to go but up. This is how millions are made in the stock market every day. However, if you are still feeling wary, you can wait for confirmation on the next trading day.
Confirmation
It is always a good idea to watch the third day for confirmation. This confirmation ideally would consist of another white candlestick. If the third trading day finishes high, this is also a good sign. Last, a gap from the closing price of the second day and the opening price of the third day is a solid indication that this is an upward trend rather than a short interruption of a downward trend.
Variations of the Bearish Piercing Line
This is one candlestick pattern where the wicks and other incidental factors don’t really make much difference. The key variable is how far into the first day’s body the second day penetrates. It is important that the closing price of the second day make it past the first day’s midsection because this is widely considered the place of most resistance. If prices can push above that, this clearly is the beginning of a new upward trend. At this point, you will begin to see more action from traders who are focusing on short positions, which will help the price to rally even further. From there, it is upward and onward.
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Source : candlestickanalysis.com/
