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The dark cloud cover candlestick pattern is an important one to identify, because seeing this pattern can save you a lot of money. It all begins in an uptrending market with a steady stair-step procession of white candles. The first day of the dark cloud cover pattern will be one of these long white candles. The second day will start out with a gap up from this white candle, but it begins to drop. It continues the downward descent throughout the day, ending with a long black candle that closes below the midpoint of the white candle from the first day. This black candle is the ‘dark cloud’ covering the white candles. The closer is comes to actually engulfing the white candle—that is, to closing below the white candle’s body—the more strongly it indicates a future downturn.
The closing point is crucial here. The second day must close at a loss from the opening, but within the range of the first day’s trading and ideally at or below the middle of the first day’s white candlestick, which is then called the ‘capping candle’ because it is the cap on the upward trend, the last of the white candle procession.
Once this pattern is explained, it is easy to infer what it means for investors. The dark cloud cover candlestick is the beginning of a shift from a bullish trend to a bearish one. Although the second day began with high hopes and a high beginning, it has quickly made a downward turn. It is a sharp turn and one that often takes investors and shareholders by surprise. However, you can avoid being part of the carnage by recognizing the downturn and acting accordingly.
Your Next Move
The dark cloud cover is considered a highly reliable indicator and a warning to take steps to protect your profits. However, there are a few factors that make it even more trustworthy. First, the more the black candlestick body overlaps with the white candlestick body of the first day, the more certain it is that a downturn is at hand. Some investors will only act immediately if the black day closes more than halfway into the white body from the first day. However, it rarely hurts to wait for a confirmation on the third day before making any rash decisions.
Confirmation
What you are looking for on the third trading day after a dark cloud cover candlestick pattern are signs that the downturn from the second day is indeed becoming the new trend. There are several things that can signal this, but the most common is a large black candlestick. A sizeable gap down or a generally lower close would also provide confirmation that a downward trend is gaining
momentum.
Variations of the Dark Cloud Cover Reversal Pattern
The only real variations of the dark cloud cover reversal pattern lie in how large the candlesticks are and how far the black body penetrates in the white body. In general, larger candlesticks are a stronger indicator because the larger number is less likely to be affected by chance. Along the same lines, the higher the percentage of the white candlestick overlapped by the black, the more likely that you are looking at a change in trend.
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Source : candlestickanalysis.com
JOIN FBS
The dark cloud cover candlestick pattern is an important one to identify, because seeing this pattern can save you a lot of money. It all begins in an uptrending market with a steady stair-step procession of white candles. The first day of the dark cloud cover pattern will be one of these long white candles. The second day will start out with a gap up from this white candle, but it begins to drop. It continues the downward descent throughout the day, ending with a long black candle that closes below the midpoint of the white candle from the first day. This black candle is the ‘dark cloud’ covering the white candles. The closer is comes to actually engulfing the white candle—that is, to closing below the white candle’s body—the more strongly it indicates a future downturn.
The closing point is crucial here. The second day must close at a loss from the opening, but within the range of the first day’s trading and ideally at or below the middle of the first day’s white candlestick, which is then called the ‘capping candle’ because it is the cap on the upward trend, the last of the white candle procession.
Once this pattern is explained, it is easy to infer what it means for investors. The dark cloud cover candlestick is the beginning of a shift from a bullish trend to a bearish one. Although the second day began with high hopes and a high beginning, it has quickly made a downward turn. It is a sharp turn and one that often takes investors and shareholders by surprise. However, you can avoid being part of the carnage by recognizing the downturn and acting accordingly.
Your Next Move
The dark cloud cover is considered a highly reliable indicator and a warning to take steps to protect your profits. However, there are a few factors that make it even more trustworthy. First, the more the black candlestick body overlaps with the white candlestick body of the first day, the more certain it is that a downturn is at hand. Some investors will only act immediately if the black day closes more than halfway into the white body from the first day. However, it rarely hurts to wait for a confirmation on the third day before making any rash decisions.
Confirmation
What you are looking for on the third trading day after a dark cloud cover candlestick pattern are signs that the downturn from the second day is indeed becoming the new trend. There are several things that can signal this, but the most common is a large black candlestick. A sizeable gap down or a generally lower close would also provide confirmation that a downward trend is gaining
momentum.
Variations of the Dark Cloud Cover Reversal Pattern
The only real variations of the dark cloud cover reversal pattern lie in how large the candlesticks are and how far the black body penetrates in the white body. In general, larger candlesticks are a stronger indicator because the larger number is less likely to be affected by chance. Along the same lines, the higher the percentage of the white candlestick overlapped by the black, the more likely that you are looking at a change in trend.
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Source : candlestickanalysis.com
