Independent Forex Trading

Piercing Line Candlestick Pattern

The piercing line 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 a “down” candle, and the second should be an “up” candle.

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Piercing Line Candlestick Pattern Analysis

The piercing line candlestick pattern represents a pending reversal to the upside. As with all reversal patterns, the piercing line candlestick pattern is most significant when it is preceded by an established trend - in this case, a downtrend.

Confirmation

The piercing line 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 down trend.
  • Confirmation candles are used to confirm the reversal.
  • Oversold indicators confirm a change in market direction.

Forex Trading Ideas

The piercing line candlestick pattern may be traded alone, or with a combination of signals and/or indicators. For example:

  • Step 1 – Wait for a piercing line candlestick pattern to appear during an established down trend.
  • Step 2 - Confirm the trend reversal with at least one confirmation candle.
  • Step 3 – Further confirm oversold conditions using the Relative Strength Index Indicator.*
  • Once conditions 1 – 3 are met place an entry order.

*Additional confirmation ideas – confirm the piercing line candlestick pattern when it appears outside of the Bollinger Band or when the Stochastic Oscillator signals an oversold condition.

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