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Chapter 9, Part V. Double Deuce – dual candlestick patterns. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 15, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Piercing Pattern

    The bullish analog of Dark Clouds is the Piercing Pattern. Piercing Pattern appears after solid move down and could mark a bottom or appear at support level. Appearing of this pattern could give us early warning about possible upward retracement or even a bullish turnaround. Here is what it looks like:

    [​IMG]

    Now, tell me what the consolidated candle of Piercing pattern will be?

    Pipruit: Let’s see… First, as the open price of consolidated candle we have to use the opening price of the first black candle. The close price of the consolidated candle will be the close price of the white candle. Oh! It seems that consolidated candle has small black body. Then the consolidated high price will be the highest price of two candles so as a low – the lowest one the whole pattern… right. Well, Commander, I may be wrong but the consolidated candle should be a Hammer pattern with black body. Like here:​

    [​IMG]

    Commander in Pips: Well done, my boy! I suppose now you can easily describe the market mechanics of this pattern, because it will be quite the same as Hammer one.

    Pipruit: Sure, besides, creating the consolidated candle strongly simplified my understanding.​

    Commander in Pips: Now tell me, basic features of this pattern, as we’ve done for Dark Cloud.

    Pipruit: The Piercing Pattern consists of two candles. The first one should represent a good strong down candle with small shadows (or even without them) – this should be just a strong down candle with obvious price decreasing price action. Due to market downside momentum, the next trading period (white candle) opens below the lows of black candle. But then, bullish pressure totally overpowers the seller’s move and negates all the bears’ work to push prices lower. The perfect Piercing Pattern assumes that the closing price of the white candle should be above the middle of the black candle. The opening price of the white candle should be below the lows of the black candle, as on the picture.

    This is bullish reversal pattern and usually it appears after some downside move, on bottoms or above support levels. It gives us early notification that the market has reached some support and could bounce to the upside or even reverse for the long-term.

    Although we’ve described the perfect pattern, some easier conditions could be applied, especially in liquid markets (so as Forex). So, this is normal, if the white candle shows an opening price just below the close price of the black candle rather than below the low. Also, the closing of the white candle could be not so deep, as on the picture, but the deeper the close of the white candle penetrates the black one, all the better. If the close of the white candle does not even reach the middle of the black candle, then this pattern is treated as not sufficient (this is one of minor patterns) and demands additional confirmation from future price action – for example, solid continuation of an up move after pattern has been formed.​

    Commander in Pips: Ok, so as you start to understand opposite (mirror) patterns correctly, based on the initial pattern, later we will talk in details about just one of them, and much less about it’s mirror, if you don’t mind of course...

    Pipruit: Not at all.​
     
    Hamza Samiullah and fran alvarez like this.
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