Dark cloud candlestick pattern: Trend reversal signal for day traders

trend analysis

Dark cloud candlestick pattern is a great trend reversal signal usually found while trading in the stock. This pattern is proved to help more of the day traders.

It is usually advised for day traders and if you are able to learn and digest its working, you will be upper hand in identifying trend reversal among day traders.

This is 2 candlestick pattern and found at a high that is an uptrend.

This is used with a gap up trading techniques where close price and open price forms a value difference.

Let’s see how market can be interpreted from this pattern and how can you identify and trade using this pattern

Physical appearance of dark cloud candlestick pattern

This candlestick pattern is formed by the combination of two, one being bullish and the other being bearish in nature.

  1. The first candlestick is bullish in nature trying to make a high in an uptrend.
  2. The second candlestick is bearish in nature and is opened with a gap up that is the open price is above the close price of bullish candlestick
  3. The second candlestick should close below the mid value price of bullish candlestick(first candlestick of the pattern)
  4. A third bearish candlestick makes the pattern confidently confirm that the bearish trend has taken its way. But this may not happen always if found then a good signal. Otherwise, rest of the interpretation of signal remains same.
Dark cloud candlestick pattern example_1_1
Source: Economic times

Market Interpretations of Dark Cloud Candlestick Pattern

Market interpretation starts with the first candlestick which is bullish and trying to set high in the uptrend. Here the market is assumed to go in uptrend direction and buyers are very well encouraged to dominate the market.

Bearish reversal signal starts with the formation of the bearish candlestick with a gap up.

The gap up signifies that there were buyers in the market who were willing to drive the market but the majority of the market was of sellers and despite gap up, sellers confidently and comfortably brought the market in a bearish direction. The sellers successfully rejected the gap up the formation and dominated the market such that the close price crossed the mid value of bullish candlestick.

Find some other bearish candlestick patterns here

  1. 3 black crows candlestick pattern
  2. Bearish harami candlestick pattern
  3. Bearish Kicker Candlestick Pattern
  4. Evening Star candlestick pattern

Try before you jump

Such a market interpretation usually help day traders to decide their move. Usually, gap and gap down are not directly interpreted by indicators and candlestick patterns play the role of savior.

Here are few examples for the same

Dark cloud candlestick pattern example__2
Source: Economic times


Dark cloud candlestick pattern example__1
Source: Economic times

Key elements to remember

  1. 2 candlestick pattern
  2. Works well after a proper strong uptrend formation
  3. The first candle should have long trading range trying to make high in uptrend
  4. The second candlestick opens with a gap up
  5. Beneficial for day traders who work on price actions
  6. Very strong bearish trend reversal signal

Learn about 4 most important technical indicators

Bottom line

For beginners, it is not advised to start day trading but one should always try to learn as many patterns possible. This pattern gives proper insights of the market and will help you understand trend reversal conditions in a better way.

Post Author: Sushant Putatunda

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