What is Dark Cloud Cover Pattern
This requires two candlesticks and prior uptrend. The first candle is hollow candle and second aka engulfing candle is filled candle closing below close and above open of prior hollow candle.
Underlying Psychology Behind Dark Cloud Cover
The first day of the pattern, bulls are still in control as we have confirmed uptrend. Price opens higher next day suggesting bulls are still in control, however during the session bears makes entry and starts selling, this selling bought the prices of underlying security lower and close just above the open price of previous hollow candle.
The dark cloud cover pattern is similar to the bearish engulfing pattern with only a small difference. Instead of fully engulfing the hollow candle, second candle partially engulf the hollow candle (50%-100% hollow candle body) and rest of the details remains same.
Example of How to Use Dark Cloud Cover
Example of How to Trade Dark Cloud Cover
Decision: In case of dark cloud cover,traders should start looking for selling opportunities, sell price should be around the close price of second candle after the hollow candle.
Stop loss: What if the market reverse its direction after printing the dark cloud cover pattern? The highest high of the two candle making dark cloud cover pattern will act as stop-loss in case that happen.
Main Points to Consider
- Wait for confirmation candle after the dark cloud cover pattern has been formed.
- Pattern with large body candles works better compared to the pattern with short body.
Candlestick beginner? Here are some articles you might be interested in
- what are the candlestick and how to read them.
- What is a Dragonfly Doji Candlestick and how to use it for trading.
- Introduction to candlestick patterns.
- Long legged doji candlestick pattern and how to use it for trading.
- Gravestone doji candlestick and how to use it for trading.
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