The Piercing Pattern
Just as the Bearish Engulfing Pattern is the opposite of the Bullish Engulfing Pattern, the Piercing Pattern is the opposite of the Dark Cloud cover. The Piercing Pattern is a two candle reversal signal that comes at the BOTTOM of a DOWN move.
The criteria for the Piercing Pattern is as follows;
- The Piercing Pattern is made up of two candles at the bottom of a down move.
- At the bottom of a DOWN move, a BEARISH candle should be followed by a BULLISH candle, which closes MORE THAN HALFWAY up the BODY of the BEARISH candle, but does not close above the body of the BEARISH candle.
Above is an image of the “perfect world” Piercing Pattern. Price moves down, then the Piercing Pattern appears and then price moves back up. Oh how easy this is !!
However, at the risk of repeating this for the 1 millionth time, a Reversal Signal is NO guarantee that price will “reverse”.
Below is an image that contains two Piercing Patterns in pretty close proximity to each other.
In the first of the two patterns, you can see that price moved down, then the Piercing Pattern appeared, but price moved sideways after it.
In the second pattern indicated you can see that although the candles formed a Piercing Pattern, it did not count as a true Piercing Pattern as it did not immediately follow a down move.
Just like the Engulfing Patterns and the Dark Cloud Cover, the shadows, (wicks) are NOT important to the pattern themselves other than to give you an indication as to where you might want to place your stop when trading these patterns.
The Piercing Pattern is less important than the Bullish Engulfing Pattern however it is always worth noting WHERE and WHEN they occur, especially if it occurs at a previous level of Support, or another level of interest.
Not much more I can write about the Piercing Pattern. It comes at the bottom of a down move, it’s made up of a BEARISH candle followed by a BULLISH candle. The BULLISH candle closes more than halfway up the body of the BEARISH candle. It’s importance should be measured in the context of where in Price Action it occurred.
I did think, admittedly only when I was writing this post, that it mat have been an idea to include lines on all images as to where to place stops when trading the patterns discussed so far, just the same way I have done in the first image of this post.
However, rather than go back and drag up all the images again, some of which I’ve actually deleted already, I think it is probably enough to say that the highs or lows of the shadows (wicks) of the candles that form these patterns should serve as a reasonable enough place to put your stops, actually, more likely just a handful of pips above/below the highs/lows.
Do remember though to take note of where all of these patterns appear in the context of the Price Action of the pair you’re trading, as any of these patterns forming at a level which has had NO previous importance may turn out to be nothing more than the market taking a rest before it continues in the prior direction
And just before I go for tonight to start reading up on the “STARS” (and I’m not talking Justin Beiber and Miley Cyrus here), well done Mr Carter for being out of the blocks so fast last night. All you need to do is ask Santa for another 52 Sundays like that next year mate and it’s Havanas all round me thinks 
EDIT; Actually I was just reading back through this and I reckon I got part of the second image wrong. As you can see price was in a down move, and then a Piercing Pattern appeared and price went sideways, but I have labelled it a “Failed Piercing Pattern”. But when you think about it, it didn’t Fail
I’ve wrote a load of times that reversal signals only indicate that the direction of price may change, and I reckon the direction DID change, even for a little while. It was going down, then it went sideways after the pattern appeared. My mistake guys, sorry.
So short off 2931 for a day trade.
