Dark Cloud Cover Candlestick Pattern

The Dark Cloud Cover candlestick pattern is a bearish reversal candlestick pattern that develops at the top of uptrends. A Dark Cloud Cover candlestick pattern indicates that dark times are most likely ahead for the stock's share price, hence the name of the candlestick.

When a Dark Cloud Cover candlestick pattern develops, it starts with its share price gapping higher when the market opens. This is due to unusual buying in the pre-market hours. Once the market opens though, the buying rally seems to be short-lived as profit-takers and short-sellers both step in and immediately start selling shares.

By the end of the trading session, the stock's share price has reversed course from its bullish opening and has closed 50% or more into the real body of the preceding candlestick. This is a powerful bearish reversal indicator that signals a trend reversal either just started or is almost ready to begin.

I have a theory that short-sellers help to create the early buying frenzy in the pre-market by buying shares before the regular trading session begins. This creates the continued bullish atmosphere and implies that the good times are still going. This pre-market buying usually involves a gap-up for the share price when the market opens.

However, once the market does officially open, the short-sellers stop bidding up the market and immediately start selling all their purchased shares. Once they run out of purchased shares, which happens pretty quick, they start shorting the market. The short-sellers created a "Bull Trap" in the early trading hours. As the trading session progresses, the continued selling creates downwards pressure on the stock's share price, sending its share price lower.

A Dark Cloud Cover candlestick pattern indicates that the uptrend probably just ended. The buyers (bulls) thought they were in control of the market, enjoying an early morning gap-up that immediately which pushes slightly higher as the morning progresses. However, a wave of sellers then step in right when the bulls think they are in control and a massive wave of selling tends to take place.

Requirements

Listed below are the requirements and characteristics for Dark Cloud Cover candlestick patterns......

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