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 The Dark Cloud Cover Candlestick Chart Pattern

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PostSubject: The Dark Cloud Cover Candlestick Chart Pattern   Fri Feb 12, 2016 7:19 am

What is the Dark Cloud Cover Candlestick.

The Dark Cloud Cover candlestick is similar to the Bearish Engulfing Pattern. It’s a bearish candlestick reversal chart pattern. The  formation has two primary components.

A Bullish Candle on Day 1.

A Bearish Candle on Day 2.

The candlestick formation appears when on Day 2, a bearish candle closes below the middle of the bullish on Day 1. In addition, the prices widen the gap during the opening on Day 2. Consequently fill the gap, and close considerably inside the gains made by the bullish candlestick on Day 1.

The bearish sentiment seems legitimate as the gap up is rejected. However, by retracing into the advances of previous day’s candlestick, the bearish sentiment gathers even more strength. The bullish traders subsequently fail to hold the prices higher. The increasing supply wins over diminishing demand in the market. And then the prices fall.

Below is a chart that depicts the bearish reversal formation a bit more closely.

Dark Cloud Cover candlestick Sell Signal.
Most traders make the same mistake – whenever they see a signal of this candlestick pattern (Day 1 + 2), they typically panic. They exit their positions prematurely. However, it’s recommended that you wait for confirmation of the reversal. Usually, these patterns are accompanied with confirming signals. Those can be different technical indicators or the reversal of an upward trend line.

The basic reason for waiting for confirmation – Yes, the pattern is a bearish. But it isn’t as bearish as traders would have liked. Some of the advances from Day 1 still remain uncovered at the end of Day 2. The Dark Cloud Cover candlestick chart pattern signifies that there’s some bullish sentiment in the market. However, it doesn’t confirm a trend reversal. Thus traders utilize more bearish reversal patterns. The Bearish Engulfing Pattern for example that rejects the advances of Day 1 altogether. Then it typically closes below Day 1’s lows.

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