What is Piercing Pattern
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.