Dark Cloud Pattern
By: Ashley
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Dark Cloud Japanese Candlestick Pattern
The Bearish Dark Cloud Pattern is a two-candlestick pattern signaling a top reversal after an uptrend or at the top of a congestion or consolidation period. We see a strong white real body in the first day. The second day opens with a gap above the previous day high (in other words, it is above the top of the upper shadow). However, the bar closes near the low of the day and well within the prior day’s white body at the end of the day.
This is a strong two candle formation in an upward trending market. The Dark Cloud Signal indicates an obvious reversal of a trend. It is basically the inverse of the Piercing pattern.
The first candle is white, a continuation of the upward trend.
The second candle is black. It opens above the previous day’s high point, and closes below the middle of the previous day, near or at the low for the current day.
Rules to identify the Dark Cloud Pattern:
- The upward trend has been consistent for a good period of time.
- A long white candle appears at the top of the trend.
- The next day opens higher than the high point of the previous day.
- The black candle closes more than halfway down the white candle.
Dark Cloud Pattern Potential Signal Strengtheners:
- The longer the candle pair bodies, the greater potential for a stronger reversal.
- The larger gap up from the previous days close, the stronger the reversal.
- The lower the black candle closes compared to the white candle open, the stronger the reversal.
- Large volume trading during both days can be a significant indicator of the reversal.
General Analysis and Investor Sentiment:
The market trend was on its way up. The stronger the uptrend, the more investor sentiment changes to fear of the end of the trend. The day opens above the previous day’s low because the buyers are trying to push the prices up further. Before the end of the day’s closing, the market starts selling for the inevitable reversal and/or to take profits. This pushes the price down and it closes near the low of the day. The close price has almost negated the previous day’s gain, scaring the buyers even more. More selling and less buying the next day will confirm the Dark Cloud reversal.
Thats it for the Dark Cloud Japanese Candlestick Pattern. Keep learning and mastering Forex with us, here at PipsAngels.com. See you soon!
