Dark Cloud Cover Candlestick Pattern
The dark cloud cover candlestick pattern is composed of two large bodied candlesticks of approximate equal height with relatively small, or, no upper or lower shadows. The first candle should be an “up” candle, and the second should be a “down” candle.
Dark Cloud Cover Candlestick Pattern Analysis
The dark cloud cover candlestick pattern represents a pending reversal to the downside. Similar to other reversal patterns, the dark cloud cover candlestick pattern is most significant when it is preceded by an established trend - in this case, an uptrend.
The dark cloud cover candlestick pattern becomes increasingly relevant when the following occur:
- Both candles contain a large body and are of approximate equal height. The upper and lower shadows are absent or relatively small.
- The first candle should be a “down” candle, and the second should be an “up” candle.
- It is preceded by a strong up trend.
- Confirmation candles are used to confirm the reversal.
- Overbought indicators confirm a change in market direction.
Forex Trading Ideas
The dark cloud cover candlestick pattern may be traded alone, or with a combination of signals and/or indicators. For example:
- Step 1 – Wait for a dark cloud cover candlestick pattern to appear during an established up trend.
- Step 2 - Confirm the trend reversal with at least one confirmation candle.
- Step 3 – Further confirm overbought conditions using the Relative Strength Index Indicator.*
- Once conditions 1 – 3 are met place an entry order.
*Additional confirmation ideas – confirm the dark cloud cover candlestick pattern when it appears outside of the Bollinger Band or when the Stochastic Oscillator signals an overbought condition.
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By adding additional confirmation signals and indicators the dark cloud cover candlestick pattern has the potential to become increasingly accurate in predicting trend reversals
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