The Dark Cloud Cover
The Dark Cloud Cover is a bearish reversal signal.
Think of this candlestick charting pattern as a partial solar eclipse blocking out part of the sun.
Since the Dark Cloud Cover is a bearish reversal signal, it must come after a rally.
Identification:
- First day is a long white day
- Second day is black with an open above the high of the previous day
- Second day closes within but below the midpoint of the first day’s body. The greater the penetration of the black body's close into the prior white body, the greater the chance for a top.
What it signals:
In an uptrend the market gaps open, but loses ground to fall below the midpoint of the previous day. The-Dark Cloud Cover pattern suggests an opportunity for the shorts to capitalize on the next day’s open: a warning sign to bullish investors. The-Dark Cloud Cover pattern is the opposite of the Piercing Line pattern.
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Another prime use of this candlestick charting pattern is utilizing it as a prior resistance area.
As with all candlestick charts and patterns, this should be used with other technical analysis tools to further confirm its effectiveness.
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