Piercing Line Candlestick Pattern

Stock traders watch a so-called thrusting line as part of a pattern that indicates increasing demand for a particular stock. Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Traders look at the next candle from the bullish candle to confirm the appearance of the Piercing Pattern. The Piercing Pattern suggests that the sellers were in control of the trend, but now the buyers have taken charge, which means the price is moving upwards.

• In addition, they enter a position only when a third candle closes above the second bullish candle, and confirms a trend reversal.
• On the second candle, although the bears continue pushing the price down at the start of the session, the bulls jump in and fight back.
• The white body pierces the midpoint of the prior black body.
• Additionally, the price gaps down on Day 2 only for the gap to be filled and closes significantly into the losses made previously in Day 1’s bearish candlestick.

We focus on the bullish piercing line and the bullish engulfing patterns because the market has an upward bias. If the buyers continue past the midpoint and even past the open of the previous day’s candle, we have a bullish engulfing pattern, as we saw with Microsoft on February 24. A bullish reversal buy signal is confirmed once forex price closes above the neckline which is the opening of the candlestick on the left of the Piercing Line candlestick. The bullish trend before forming the candlestick pattern shows that buyers are weakening with time.

Piercing Line Candlestick Pattern: Full Guide

This green candle has a lower open price, preferably below the low of the red prior candle. This is the support for buyers to push the price higher to reach more than 50% from the last bearish candle. So, the presence of this candlestick formation tells us that buyers were in control initially, driving price higher. Once again, this pattern highlights a sharp shift in sentiment in the market, this time alerting us to the potential for a continuation lower and a broader bearish reversal to play out.

We take a variation of the https://forexhistory.info/ pattern entry-level but tweak it slightly. If you’ve followed any of our other candlestick pattern guides you’d probably be able to guess how we’d do this. 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. The theory behind a piercing pattern is that the short sellers have been quickly and aggressively halted and reversed by an influx of buyers. In this guide, we’ll go through how to trade a piercing line pattern and understand the theory behind it. A major support area is penetrated when the second day opens below the support area but then prices rise and close above the support area.

In the bullish engulfing pattern, the green candle engulfed the entire previous red candle. In the piercing pattern, the green candle pierced, but does not envelop the previous entity. In the form of perforation, the higher the degree of penetration, the more likely it is to become a fund investment. The piercing line pattern is considered a bullish reversal candlestick pattern that is at the bottom of a downtrend. When bulls enter the stock/crypto market and prices rise, it usually indicates a change in trend. For educational purposes, we have annotated our overview example to show how a trading strategy might work for this bullish piercing line candlestick formation.

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In a piercing line pattern, you can visually see that the second candle covers about half of the first candle for forming a piercing shape. The red candle may not get covered in its entirety, implying that bulls could not control the market completely and reverse complete losses of the first day. The second candle opens at a lower price than the closing of the first one. However, the second candle quickly reverses to close at a higher level, and in the process, it pierces the top portion of the first candle by closing slightly below the top of the first candle. That’s the reason it’s named as a piercing candlestick pattern.

Trading forex on margin carries a high level of risk and may not be suitable for all investors. These are easy to obtain take profit levels and have a high degree of the market to trade towards the nearest resistance level. This is a slightly lower risk version of how to trade them, but the lower risk is the premium we pay for a strong confirmation. This short push lower, then trading higher in the same session gives validity to the buyers entering the market. The Piercing Line Pattern is a bullish Japanese Candlestick reversal pattern and the opposite of the Dark Cloud Cover pattern.

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However, the attempt to punch below the area failed as a Piercing Line pattern formed. This failure offered a signal to go long, and we expected the market to close the gap. Further, you can combine the trading pattern with technical indicators like the Relative Strength Index and the Stochastic Oscillator. If the pattern forms as these indicators are in an oversold level, it could be a sign that a new bullish trade is about to form.

Between 74%-89% of retail investor accounts lose money when trading CFDs. A bullish piercing candle does not have any upper shadow and occurs after the end of a downtrend. Under this, price points pierce through the resistance levels formed in prevailing trends.

Moreover, the second candle closes at a value nearer to the opening price of the first day. In order to have a clear piercing line pattern, the second green candle shall cover at least half of the last day’s red candlestick. There are several things to keep in mind to identify the piercing line pattern. First, the pattern appears at the bottom of a downward trend. Secondly, it includes a long bearish candle followed by a long bullish candle that must be at least 50% of the length of the previous candlestick. The chart below shows a good example of a piercing line pattern.

Thus, a piercing pattern can be further confirmed if it occurs at the support trendline of a price channel, where buying has previously come into play. 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. The piercing pattern is a two-day candle pattern that implies a potential reversal from a downward trend to an upward trend. Body to wick ratio of both bullish and bearish candlesticks should be greater than 60%. The body of the candlestick indicates the momentum of buyers and sellers. Trading stocks, options, futures and forex involves speculation, and the risk of loss can be substantial.

The psychology behind the bearish piercing pattern

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. When you discover one of these piercing patterns, they are easy to trade, but for me personally, I like to see more price action to encourage the move higher. Most candlesticks can produce strong signals of a reversal or a price continuation. The white or green candles close to more than half of the black or red candles. Pricing gaps are rare in the forex arena as volumes are so high and liquidity is so deep.

https://day-trading.info/ Patten Candlestick charting formation, similar to Bullish Engulfing Pattern is a bullish reversal candlestick pair occuring at the bottom of downtrends. After the strong downtrend took effect, the sentiment was bearish. The bears may even drive prices down even further, but before the end of the time period, the bulls intervene and reverse the prices drastically. The price closed near the high of the time period, a move that almost offset the price drop the time period before. The piercing line pattern can be a false signal, as is the case with all technical constructs.

DTTW™ is proud to be the lead sponsor of TraderTV.LIVE™, the fastest-growing day trading channel on YouTube. If the bullish breakout happens, there is a possibility that the buy-stop trade will be initiated. The NAGA Group AG is the holding company of various companies, such as NAGA GLOBAL LLC, NAGA MARKETS EUROPE LTD, NAGA Technology GmbH, NAGA Pay GmbH and has a close link with NAGAX Europe OÜ. Look for the bigger context, and when stacked with other confluence of factors such as other technicals or fundamentals, the edge might become large enough to initiate trades. And if you are using RSI as a trend indicator, its value is below 50.

On SPY on the daily timeframe, the primary trend is down — as noted by the lower lows and lower highs. We would agree that it is better to trade in the direction of the primary trend. Many will use 50% or more into the body because it is easy to spot the midpoint of the previous candle visually. For the case of Mastercard , the price continued to fall below the pattern.

In this chart, we see that the price of crude oil has been in a strong bearish trend. We also see that the commodity formed a strong bearish candlestick. This formation appears during a downtrend, with the first candle long bodied and bearish . The following trading day prices open at a new low, but trade higher and close at a level where the candle reaches above the midpoint of the prior day’s body. This piercing line pattern consists of two downtrend candles. The first candle is a red body and the second candle is a green body.

The list of symbols included on the page is updated every 10 minutes throughout the https://forexanalytics.info/ day. However, new stocks are not automatically added to or re-ranked on the page until the site performs its 10-minute update. The downward trend has been obvious for a long time, and a long negative line appears at the end of the trend. The body of the first candle should be black or red and the body of the second candle should be white or green.

Formation of a Piercing Pattern

In this article, we are going to take a look at a mid-level candlestick formation known as the piercing line pattern. 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.

As these patterns are rare, they can give out misleading signals. This is the reason why they are not popular among intraday traders. These patterns’ reliability might increase if the conviction from one more indicator can be drawn. Gaps can only be formed if a security’s opening price is higher or lower on the second day compared to the previous day’s closing price . In the bullish piercing line candlestick, the second candle opens with a gap implying that the opening value is lower than the closing value of the previous day. The piercing line is a bullish reversal candlestick pattern found at the end of a bearish trend that helps traders find potential reversal zones.

The location of a candlestick pattern on the chart matters a lot. Because some candlestick patterns will work in the trending market conditions while some will work during sideways market conditions. So, it would help if you refined a trading setup from the crowd by adding confluences. It is always traded at the top of the price chart to get profitable results. The piercing pattern is voided if future candlesticks go below the second day bullish candlestick low.

High volume accompanies the second day bullish candlestick’s opening. A Piercing Line is a two bar formation that develops after a down leg with the first bar continuing a move down with a long red body. The next bar forms by opening at a new low then closes above the midpoint of the body of the first bar. And remember, when taking trades, always use a stop loss and focus on looking to achieve positive risk-reward by targeting a minimum of twice your risk.

The Piercing pattern consists of two candlesticks of alternating colors. The first candlestick must be dark in color and supportive of the current downtrend as … As you can see in the GBP/USD daily chart, the piercing line two candlestick formation occurs at the bottom of a mini downtrend.