The Piercing Line
The Piercing Line candlestick charting pattern is a bullish reversal signal.
As the name suggests, the second white candle "pierces" into the prior first black candle.
A Piercing Pattern occurs when a bullish candle on Day 2 closes above the middle of Day 1's bearish candle.
Moreover, price gaps down on Day 2 only for the gap to be filled and closes significantly into the losses made previously in Day 1's bearish candlestick.
The rejection of the gap down by the bulls typically can be viewed as a bullish sign, and the fact that bulls were able to press further up into the losses of the previous day adds even more bullish sentiment.
Bulls were successful in holding prices higher, absorbing excess supply and increasing the level of demand.
Since the Piercing Line candlestick formation is a bullish reversal signal, it must come after a downtrend.
Identification:
- First day is a long black day
- Second day is a white day with an open below previous days low
- Second days close is within but above the midpoint of the first days body.The greater the penetration of the white body's close into the prior black body, the greater the chance for a bottom.
What it signals:
In a downtrend the market gaps open, but rallies strong to close above the previous days midpoint. This pattern suggests an opportunity for the bulls to enter the market and support the trend reversal.
The-Piercing Line pattern is the opposite of the Dark Cloud Cover.
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Conclusion
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Another prime use of this candlestick charting pattern is utilizing it as a prior support 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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