Candlestick Piercing Pattern

The candlestick piercing pattern is a reversal in a down trending market similar to the bullish engulfing pattern and is therefore considered bullish. This pattern is made up of a long red (or black) stick, showing a price decline. It is then followed by a long green (or white) stick, showing a period of price increase. The green stick must start below the bottom of the red stick. In order for this pattern to signify a strong reversal, the green stick must go up halfway or more to the top of the red stick. In order to classify as a candlestick piercing pattern four criteria must be met. First, the body of the first candle is red and the body of the second candle is green as stated above. Second, the downtrend has been apparent for a good period. (A long red or black candle occurs at the end of the trend). Third, the second day opens lower than the trading of the previous day. Fourth, the green candle closes more than halfway up the red candle. When dealing with the piercing pattern there are three things to look for. First, the longer the red candle and the green candle the stronger the reversal of the pattern. Second, the higher the green candle closes into the red candle the more prominent the reversal is for this pattern. Lastly, the greater the gap down from the prior day’s close the stronger the reversal. It is also important to note that the day before the piercing candle appears, the daily candle should have a fairly large dark red body to signify a strong down day.

What does the candlestick piercing pattern indicate is happening in the markets?
This pattern indicates that the stock has shifted from a declining price trend to a rising price trend. The theory behind the appearance of this pattern indicates that the bears have been in control of the stock (in the downtrend) and then the stock opens below the close of the first candle and the bulls take over. Basically, if you see this pattern, it is a signal to buy the stock and ride the increasing price up for a profit. Investors can maximize any profit they obtain when seeing this pattern. This is due to the fact that this pattern appears at the beginning of a trend so it also appears right when the stock shifts from a declining pattern to a rising pattern.

Many investors say that the bullish piercing pattern is most easily detected when looking at Japanese Candlesticks stock charts. Investors should also learn about the other major candlestick signals such as the doji candlestick chart, the bearish engulfing pattern, the candlestick hammer signal, and the inverted hammer candlestick. There are other important signals in addition to these for investors interested in trading the stock market using candlestick analysis. Learn how to increase your profit though candlestick trading online and join me in my 2-Day Trading for Profits Online Training Clinic.

Continue your Japanese Candlestick education and read about the dark cloud cover reversal pattern.