Piercing Candlestick Pattern

The Piercing candlestick pattern is a bullish reversal candlestick pattern. A Piercing candlestick indicates that the current downtrend may be near an end or may have already ended. As such, a Piercing candlestick pattern represents a potential buy signal.

When forming a Piercing candlestick pattern, the market typically gaps lower at the opening of the trading session due to a lot of early selling during the pre-market period.

But the selling rally is typically short-lived once the market officially opens as buyers step in to dominate the trading session. By the end of the trading session, the stock’s share price has reversed course from its bearish opening and has closed at least 50% or more into the real body of the previous candlestick.

I believe that bullish investors help create the early selling frenzy by first selling shares in the pre-market activity to help create the the gap-down. However once the market officially opens the bullish investors immediately start buying shares.

By selling shares early before the market opens and creating the gap-down, I believe that the bullish investors are trying to create a “Bear Trap“. This buying activity creates upwards pressure on the stock’s share price throughout the day sending prices higher.

Requirements

Listed below are the requirements for a Piercing candlestick pattern.

It is a bullish reversal candlestick pattern

The real body is always a green/white color

It must close at least 50% or more into the real body of the previous candlestick, but below the top of the real body

If the Piercing candlestick ends up closing above the previous candlestick’s real body, the Piercing candlestick becomes a Bullish Engulfing candlestick

Characteristics & Observations

Listed below are the characteristics and observations for Piercing candlestick patterns that I have seen over the years.[s2If !current_user_can(access_s2member_level1)]…..

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In order for a trend reversal to take place, the share price must have been in a clearly defined downtrend before forming a Piercing Candlestick Pattern

A Piercing candlestick that develops on volume that is heavier than the previous candlestick’s volume provides a greater chance at reversal than a Piercing candlestick pattern that develops on low volume

The higher the Piercing candlestick pattern closes into the previous candlestick’s real body, the greater the chance for a reversal

The share price for the Piercing candlestick pattern should close at or near it’s high for the trading session

Bearish Counterpart

The bearish counterpart to the Piercing candlestick pattern is the Dark Cloud Cover candlestick pattern.

While the Piercing candlestick pattern is not quite as convincing of a bullish reversal candlestick pattern as a Bullish Engulfing candlestick pattern, it is still a powerful reversal pattern. However, I would also much rather trade from a Piercing candlestick than a Thrusting candlestick.

Support Area

The support area for a Piercing candlestick pattern is defined as the intra-period low, or the very bottom of the lower shadow.

If there is a close below the Piercing candlestick’s support area, the support area is considered null and void. However, I prefer for two consecutive closes below a support area before considering it null and void.

Trading Strategies

A Piercing candlestick pattern that develops on heavier than normal buying volume is high probability buy signal. I would rank the Piercing candlestick pattern right behind the Hammer and Bullish Engulfing candlestick patterns in a list of favorites.