Dark Cloud Cover is a bearish candlestick reversal pattern, similar to the Bearish Engulfing Pattern. There are two components of a Dark Cloud Cover formation:
- Bullish Candle (Day 1)
- Bearish Candle (Day 2)
A Dark Cloud Cover Pattern occurs when a bearish candle on Day 2 closes below the middle of Day 1's candle.
In addition, price gaps up on Day 2 only to fill the gap (see: Gaps) and close significantly into the gains made by Day 1's bullish candlestick.
The rejection of the gap up is a bearish sign in and of itself, but the retracement into the gains of the previous day's gains adds even more bearish sentiment. Bulls are unable to hold prices higher, demand is unable to keep up with the building supply.
Dark Cloud Cover Candlestick Chart Example
The chart below of Boeing (BA) stock illustrates an example of the Dark Cloud Cover Pattern:
Dark Cloud Cover Potential Sell Signal
Traders typically suggest not selling exactly when one sees the Dark Cloud Cover Pattern (Day 1 & Day 2) until other confirming signals are given such as a break of an upward trendline or other technical indicators. One reason for waiting for confirmation is that the Dark Cloud Cover Pattern is a bearish pattern, but not as bearish as it could be: part of the gains from Day 1 have still been preserved.
The Bearish Engulfing Pattern (see: Bearish Engulfing Pattern) can be viewed as a more bearish formation, it completely rejects the gains of Day 1 and usually closes below the lows of Day 1.
Also of interest, the bullish equivalent of the Dark Cloud Cover Pattern is the Piercing Pattern.
(Source: onlinetradingconcepts.com)
The information above is for informational and entertainment purposes only and does not constitute trading advice or a solicitation to buy or sell any stock, option, future, commodity, or forex product. Past performance is not necessarily an indication of future performance. Trading is inherently risky. FICA Academy shall not be liable for any special or consequential damages that result from the use of or the inability to use, the materials and information provided by this site.
The information above is for informational and entertainment purposes only and does not constitute trading advice or a solicitation to buy or sell any stock, option, future, commodity, or forex product. Past performance is not necessarily an indication of future performance. Trading is inherently risky. FICA Academy shall not be liable for any special or consequential damages that result from the use of or the inability to use, the materials and information provided by this site.
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