Dark-Cloud Cover

Forex Maniac > Japanese Candlestick Patterns > Dark-Cloud Cover

The Dark-Cloud Cover is a formation consisting of two candlesticks. This formation appears on the uptrend and indicates the possibility of imminent reversal. Thus, Dark-Cloud Cover is considered Bearish.

Structure

The dark cloud cover consists of two candlesticks and appears on the uptrend or the upper boundary of the trading corridor. The first candle appears with a large white body (called upward candle). The next candle opens above or on a par with the previous candle’s high, but to the bar closing time the price goes down, and the candle closes with its body covers the greater part of the previous candle. The lower the second candle closing price – the more likely reversal. Some analysts believe that the second candle should cover more than 50% of the first candle’s real body. Otherwise, the reversal pattern is not formed.

Dark-Cloud Cover

Psychology

The psychological meaning of this model is easy to explain. After the closing of the big upward candle, a trend continues with the higher opening of the next candle. However, most of all, because of profit-taking or significant macroeconomic events, the price starts to fall and covers the largest range of growth in the previous period. In this scenario, those who hold a long position – begin to think about the profit-taking. Those who planned to enter the market – will wait for even lower levels, for more profitable purchases.

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