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Wednesday, September 3, 2008

Bearish Dark Cloud Cover Pattern

Bearish dark cloud cover pattern is a candlestick trend indicator which indicates the end of an uptrend and start of a downtrend. In dark cloud cover pattern, a long white (clear) candlestick of first day is followed by a dark (colored) candlestick of the second day, forming a dark cloud over the existing bullish trend. Bearish dark cloud cover pattern benefits short sellers and place a ‘seed of doubt’ in minds of bearish day to day traders.


The requirements of a bearish dark cloud cover patter include
  1. The long white (bullish) first day candlestick must be preceded by a noticeable uptrend.
  2. The opening price of second day’s candlestick must be above the high of previous day’s candlestick.
  3. The closing price of second day’s candlestick must be within, and also below the midpoint of, the previous day’s white candlestick.
Bearish dark cloud cover pattern is considered as a highly reliable pattern of market reversal; the lower the second day’s closing price the more reliable the pattern. The reliability also increases with increase in gap between closing prices of both candlesticks and with increase in volume of trading for both days. Many traders also look for confirmation of trend reversal, which can be a lower price close, a large trading gap or another black candlestick in the third day.

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