Piercing Line Pattern

Forex Maniac > Japanese Candlestick Patterns > Piercing Line Pattern

The Piercing Line is the opposing figure to the bearish Dark Cloud Cover pattern. Accordingly, the Piercing Line is a bullish pattern; it occurs in a downtrend.

Structure

The Piercing Line pattern consist of two candlesticks. The first candlestick has a relatively large body and coincides with the current (downward) trend. The second one is in the opposite direction (upwards). The second candlestick opens bellow the closing price of the previous candle, after price rising it closes above the mid-point of the previous candlestick. In a classic definition of this pattern, candles have standard colors: when prices are falling candle has a black body, rising – white body. Thus, the white candle with its body “opens” the part of black candle and makes a gap. The more part of the first candle body opens, the more likely the reversal will happen.

Piercing Line

Psychology

The psychological background of the Piercing Line is as follows: the downward trend is dominant on the market. The appearance of the bearish candlestick with a black body confirms it. The next day the opening price forms a gap down and is below the prior closing price. All this represents the continuation of the downtrend. However, prices begin to rise, and by the end of the trading day, the closing price is more than half of the previous candle. Traders begin to think about closing short positions. Those who are waiting for the right moment to buy, say that prices are unable to hold on to the new lows, so it is time to open long positions.

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