You should take into account other elements like volume, trend lines, and levels of support and resistance. No, a Stochastic Oscillator may not be the best indicator to use specifically for trading Piercing Line Candlestick Patterns, despite its usefulness in detecting overbought and oversold conditions. This is because the Stochastic Oscillator is better at spotting momentum and trend continuation, whereas the Piercing Line pattern is more of a trend reversal signal. Even more bullish sentiment is added by the fact that bulls were able to push further up into the losses from the previous day. Bulls were successful in maintaining higher prices by reducing excess supply and raising demand. Sole reliance on the piercing pattern or any single indicator poses an overreliance risk.

This pattern indicates a potential reversal in cmc markets review the downward trend, as the bulls can take control and push prices up. Traders may watch for opportunities to enter long positions when this pattern forms. This candlestick pattern is created when buyers drive prices higher to close above 50% of the first candle’s 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. ATAS enables you to load tick-by-tick data from cryptocurrency, stock, and futures markets, providing a comprehensive basis for analyzing price and volume interactions. The Piercing Line candlestick pattern is a reversal pattern that forms at the end of a downtrend and consists of two candles.

Strategies for Trading with the Piercing Pattern

Finally, false positives are common with this pattern, meaning that often it will signal a reversal when none is present. While the Piercing Line Pattern can be a helpful tool for traders, it is important to be aware of its limitations before using it as part of your trading strategy. Many people use it when trading because it is simple and easy to understand. The Piercing Line Pattern occurs when a bearish candle follows a bullish candle, and the close of the second candle is lower than the midpoint of the first candle.

The Piercing Line candlestick trading pattern can help you find reversal entries effectively. Strike offers free trial along with subscription to help traders, inverstors make better decisions in the stock market. On average, it confirms 72.9% of the time across the 4120 markets studied. This pattern is generally confirmed within 2.3 candles or invalidated within 4.3. “Bullish” can be used to describe an entire time period for a market or simply the situation in which the price of an asset or derivative instrument is temporarily on an uptrend. Also, more volume than usual on the bullish advance on Day 2 might be a stronger indicator that bulls have taken charge and that the prior downtrend is likely ending.

1. A piercing pattern on a candlestick chart indicates that a price downturn may be due for a reversal.
2. In simple terms, the Piercing Line is a reversal pattern that indicates a potential shift from a bearish to a bullish trend.
3. As it is a top trend reversal pattern, the Evening Star pattern is a bearish pattern that should only be considered when it appears in an established uptrend.
4. The Piercing Line pattern is the opposite of the bearish Dark Cloud Cover pattern that appears in an uptrend.
5. There is a bulge around the level on the profile (3) which covers trades from August 5-6.
6. The fact that bulls were able to press further up into the losses of the previous day adds even more bullish sentiment.

Trading the Piercing Line pattern involves making decisions against the prevailing trend, which carries higher risks. This article will show you how footprint charts can increase your confidence in trading bullish reversals at market lows with the Piercing Line pattern. This unexpected upwards reversal has excellent potential to shock and trap bearish traders. The benefits of piercing line candlestick patterns is attributed to its simplicity, Listed below are three advantages of the pattern of piercing lines. In this article, we will discuss about the bullish version – the Piercing Line. DIS’s stock price, following the piercing pattern, validated its predictive power by embarking on a bullish reversal.

What is the Psychology Behind the Piercing Line Candlestick Pattern?

Employing a diversified strategy that incorporates multiple indicators and analysis methods, however, can yield a more Luno exchange review comprehensive trading approach. In late 2017, Disney’s stock (DIS) was overshadowed by bearish clouds; however, a glimmer of hope emerged on October 13th. We will now explore the chart in depth to analyze the “piercing pattern” – an event that initiated a bullish reversal and propelled DIS to new heights. This natural show is similar to the exciting time in trading when you see a piercing pattern, which can mean that the market might change from bearish sadness to bullish optimism.

Additional Bullish Indicators

If the second candle closes above the first candle’s opening level, the piercing line pattern—a bullish reversal pattern—becomes a bullish engulfing pattern. When the real body of one candlestick completely engulfs the real body of the preceding candlestick, this is known as an engulfing pattern. A piercing pattern is a two-day candlestick price pattern that includes a trading range of average or greater size on the first day, with the opening near the high and the closing near the low. A piercing pattern indicates a potential short-term change from an upward trend to a downward trend.

Key Takeaways

As it is a top trend reversal pattern, the Evening Star pattern is a bearish pattern that should only be considered when it appears in an established uptrend. The Morning Star candlestick pattern is a bullish triple candlestick bottom reversal pattern with the middle candlestick taking the form of a Star. The Morning Star pattern is similar to the Abandoned Baby Bottom pattern with the exception that the Star in the pattern need not gap away completely from the other two candlesticks in the formation. The Morning Star warns of weakness in an existing downtrend that could potentially lead to a trend reversal and the establishment of a new uptrend. More conservative traders would wait for the following candlestick to confirm the reversal before taking a long position.

Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. Bullish Engulfing Pattern is typically viewed as being more bullish than the Piercing Pattern because it completely reverses the losses of Day 1 and adds new gains. Bulls were successful in holding prices higher, absorbing excess supply and increasing the level of demand.

Both the bullish engulfing and the piercing line are bullish trend reversal patterns with similar appearance and formation. This helps reduce the risk of false signals and enhances the pattern’s overall reliability. In essence, traders use this classical chart pattern to identify the change in the trend and find entry and exit levels. The piercing line is a two-candle chart pattern that appears at the bottom of a downtrend and indicates that the existing trend might change direction. Much like many other trend reversal patterns, technical traders use the piercing pattern to spot new price trends and find buying opportunities.

In this case, footprint charts and other volume analysis tools on the ATAS platform might become your primary source of information rather than just a supplementary one. There are several things to keep in mind to identify the piercing line pattern. 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 piercing line is a bullish reversal candlestick pattern found at the end of a bearish trend that helps traders find potential reversal zones. Second, it can help to confirm other indicators, such as support and resistance levels.

Piercing Line Pattern – Formation

The Piercing Pattern is viewed as a bullish candlestick reversal pattern, similar to the Bullish Engulfing Pattern. They may also choose to buy an in-the-money call option with a strike price below the current market price. Piercing Line patterns are mirror images of the Dark Cloud Cover pattern. While the Piercing Line appears at the end of a downtrend and signals a possible upward reversal, the Dark Cloud Cover forms at the end of an uptrend and suggests a downward reversal. Using trend reversal indicators is undoubtedly an excellent method to confirm a reversal, but if you want to use another popular tool, Fibonacci retracement levels are the answer.