- Sentiment: Bearish
- No. of candles: 2
- Direction: Reversal
What Is The Dark Cloud Cover Japanese Candlestick Pattern?
The Dark Cloud Cover pattern is a bearish reversal pattern that typically forms after an uptrend.
The Japanese candlestick pattern consists of two candles.
The first candle is a long white (bullish) candle, while the second candle is a long black (bearish) candle that opens above the high of the first candle but closes below the midpoint of the first candle’s body.
What Is The Psychology Behind The Bearish Dark Cloud Cover Pattern?
The Dark Cloud Cover pattern reflects a potential shift in market sentiment from bullish to bearish. During the period of the first white candle, buyers are in control and push the price higher.
However, during the period of the second black candle, sellers step in and overwhelm the buyers, pushing the price back down and erasing some of the gains made during the first candle’s period.
This pattern indicates a possible loss of momentum for the bulls and hints at a potential trend reversal, as sellers attempt to regain control.
Japanese Candlestick Charting Techniques, Second Edition
71% OffHow To Trade The Dark Cloud Cover Reversal Pattern?
To trade the Dark Cloud Cover pattern, wait for confirmation by a subsequent bearish candle or another technical indicator.
The sell trigger occurs when the price moves and closes below the low of the second black candle, confirming the pattern.
Place a stop loss order above the high of the first white candle to protect against potential false breakouts or reversals.
As the price moves in your favor, consider using trailing stops or other risk management techniques to lock in profits and minimize potential losses.
Additional Tips
While the Dark Cloud Cover pattern can be a reliable bearish reversal signal, it is essential to use it in conjunction with other technical indicators and chart patterns to confirm the trend change.
Additionally, be aware of the overall market context and consider factors such as support and resistance levels, as well as the strength of the prevailing trend.
Keep in mind that no single pattern can guarantee a trend reversal, and proper risk management is always necessary.
Continue to learn about Japanese candlesticks through books, such as Steve Nison’s “Japanese Candlestick Charting Techniques” and “Beyond Candlesticks.”