Dark Cloud Cover

Dark Cloud Cover 

Dark Cloud Cover is a bearish candlestick reversal pattern, similarly to the Bearish Engulfing Pattern. There are two parts of Dark Cloud Cover formation:

1.Bullish candle Day 1)

2.Bearish candle (Day 2)

A Dark Cloud Cover Pattern happens when a bearish candle on Day 2 closes below the middle of   Day 1’s candle (50%below full body of Day 1 bullish candle).

And also, price gaps up on Day 2 only to fill the gap and close notably into the gains made by Day 1’s bullish candle.

The rejection of the gap up is a bearish sign. The retracement into the gain of the previous Day’s gains adds even more weakness. Bulls are unable to hold the prices higher, demand is unable to maintain with the   building supply.

Dark Cloud Cover Candlestick chart   Example

The chart below of   USDINR CURRENCY FUTURE shows an example of Dark Cloud Cover Pattern.  

Dark Cloud Cover Sell  Signal

Traders   regularly suggest not going short in the market (selling) exactly when one sees the Dark Cloud Cover Pattern (Day 1&Day 2)until other confirming   technical signals are given such as a price break of an upward trend line or    other technical indicators. One reason for waiting for confirmation is that the Dark Cloud Cover Pattern is a bearish pattern, but not as bearish as it could be part of Day 1 have been still there in price.

A more bearish reversal pattern is the Bearish Engulfing Pattern that fully rejects the gains of Day 1 and usually closes below the lows of Day 1.

Also the bullish equivalent of the Dark Cloud Cover Pattern is the Piercing Pattern.