What is a Bearish Dark Cloud Pattern?
Bearish Dark Cloud Cover Pattern is a two-candlestick pattern signaling a top reversal after an uptrend or, at times, at the top of a congestion band. We see a strong white real body on the first day. The second day opens strongly above the previous day high (it is above the top of the upper shadow). However, market closes near the low of the day and well within the prior day’s white body at the end of the day.
1. The market is characterized by an uptrend.
2. We see a long white candlestick on the first day.
3. Then we see a black body characterized by an open above the high of the previous day on the second day.
4. The second black candlestick closes within and below the midpoint of the previous white body.
Explanation for this candlestick pattern:
Market goes up with an uptrend. Then we see a strong white candlestick followed by a gap suggesting that bulls retain the control. However, the rally does not continue. Market suddenly closes at or near the lows of the day so the second day body moving well into the prior day’s real body. Longs are shaken somehow and short sellers now have a benchmark to place a stop, which is at the new high of the second day.
Important Factors for this candlestick pattern:
If the black real body’s close penetrates deeper into the prior white real body, the chance for a top increase. There are some Japanese technicians who require more than a 50% penetration of the black day’s close into the white real body. If the black candlestick does not close below the halfway point of the white candlestick then it is better to wait for confirmation following the dark cloud cover; and even if it does, a confirmation may still be necessary.
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