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14 Key Candlestick Formation
7. Dark Cloud Cover
DARK CLOUD COVER
7. Dark Cloud Cover
DARK CLOUD COVER
Description
The Dark Cloud Cover is the bearish counterpart to the Piercing pattern. The first day of the pattern is a long white candle at the top end of a trend. The second day’s open is higher that the high of the previous day. It closes at least one-half way down the previous day candle, the further down the white candle, the more convincing the reversal. Remember that a close at or below the previous day’s open turns this pattern into a Bearish Engulfing pattern. Kabuse means to get covered or to hang over.
Criteria
The Dark Cloud Cover is the bearish counterpart to the Piercing pattern. The first day of the pattern is a long white candle at the top end of a trend. The second day’s open is higher that the high of the previous day. It closes at least one-half way down the previous day candle, the further down the white candle, the more convincing the reversal. Remember that a close at or below the previous day’s open turns this pattern into a Bearish Engulfing pattern. Kabuse means to get covered or to hang over.
Criteria
- 1. The body of the first candle is white, the body of the second candle is black.
- 2. The up-trend has been evident for a good period. A long white candle occurs at the top of the trend.
- 3. The second day opens higher than the trading of the prior day.
- 4. The black candle closes more than half-way down the white candle.
Signal Enhancements
- 1. The longer the white candle and the black candle, the more forceful the reversal.
- 2. A higher the gap up from the previous days close, the more pronounced the reversal.
- 3. The lower the black candle closes into the white candle, the stronger the reversal.
- 4. Large volume during these two trading days is a significant confirmation.
Pattern Psychology
After a strong up-trend has been in effect, the atmosphere is bullish. Exuberance sets in. They gap the price up. The bears start to show up and push the price back down. It finally closes at or near the lows for the day. The close has negated most of the previous days gains. The bulls are now concerned. They obviously see that the uptrend may have stopped. This signal makes for a good short, with a stop being the high of the black candle day. Notice that if the Dark Cloud Cover were to close lower, below the open of the previous day, it becomes a Bearish Engulfing pattern. The Bearish Engulfing pattern has slightly stronger bearish implications.
After a strong up-trend has been in effect, the atmosphere is bullish. Exuberance sets in. They gap the price up. The bears start to show up and push the price back down. It finally closes at or near the lows for the day. The close has negated most of the previous days gains. The bulls are now concerned. They obviously see that the uptrend may have stopped. This signal makes for a good short, with a stop being the high of the black candle day. Notice that if the Dark Cloud Cover were to close lower, below the open of the previous day, it becomes a Bearish Engulfing pattern. The Bearish Engulfing pattern has slightly stronger bearish implications.
