What is Piercing Pattern
This requires two candlesticks and prior downtrend. The first candle is filled candle and second aka engulfing candle is hollow candle closing above open and below close of prior filled candle.
Underlying Psychology of Piercing Pattern
The first day of the pattern, bears are still in control as we have confirmed downtrend. Price opens lower next day suggesting bears are still in control, however during the session bulls makes entry and starts buying, this buying bought the prices of underlying security higher and close just below the open price of previous filled candle.
The piercing pattern is similar to the bullish engulfing pattern with only a small difference. Instead of fully engulfing the filled candle,second candle partially engulf the filled candle (50%-100% filled candle body) and rest of the details remains same.
Example of How to Use Piercing Pattern
Example of How to Trade Piercing Pattern
Decision: In case of piercing pattern,traders should start looking for buying opportunities, buy price should be around the close price of piercing candle after the filled candle.
Stop loss: What if the market reverse its direction after printing the piercing pattern? The lowest low of the two candle making piercing pattern will act as stop-loss in case that happen.
Main Points to Consider
- Wait for confirmation candle after the piercing pattern has been formed.
- Pattern with large body candles works better compared to the pattern with short body.
Beginner in candlestick? checkout below
- Shooting star candlestick pattern and how to use is for trading.
- Hammer candlestick pattern and how to use it for trading.
- 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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