Bearish Dark Cloud Cover Pattern is a two-candlestick pattern signaling a top reversal after an uptrend.We tend to see a robust white real body within the 1st day.The second day opens strongly on top of the previous day high.However, market closes near the low of the day and well within the prior day’s white body at the end of the day.
1. Market is characterised by an uptrend.
2. We tend to see a long white candlestick in the first day.
3. Then we tend to see a black body characterised by an open above the high of the previous day on the second day.
4. The second black candlestick closes within and below the midpoint of the previous white body.
Explanation:
Market goes up with an uptrend. Then we have a tendency to see a powerful white candlestick followed by a gap suggesting that bulls retain the management. However, the rally doesn’t continue. Market suddenly closes at or close to the lows of the day therefore the second day body moving well into the previous day’s real body. Longs are shaken somehow and short sellers currently have a benchmark to position a stop, that is at the new high of the second day.
Important Factors:
If the black real body’s close penetrates deeper into the prior white real body, the chance for a top increases. There are some Japanese technicians who require more than a 50% penetration of the black day’s close into the white real body. If the black candlestick does not close below the halfway point of the white candlestick then it is better to wait for confirmation following the dark cloud cover; and even if it does, a confirmation may still be necessary. This confirmation may be in the form of a black candlestick, a large gap down or a lower close on the next trading day.