Dark Cloud Cover –
Dark Cloud Cover is a bearish reversal pattern that appears in the uptrend. This pattern is the reverse of the Piercing Pattern and similar to the Bearish Engulfing Pattern with minor variation. This pattern is a combination of two candles. The first candle is a strong green candle which shows a strong uptrend followed by a strong bearish candle which shows a reversal.
The above pattern shows the formation of the Dark Cloud Cover. The first green candle shows the strong bullish trend is going on. On the next day when the next candle opens a gap up which also shows a bullish trend, but when the price doesn’t sustain at a higher level and starts falling it shows selling pressure which signals bears’ presence there. If the price falls below 50% of the previous green candle and closes below that, it forms Dark Cloud Cover Pattern.
Traders use this pattern to take the trade. Taking trade based on dark cloud cover is not a good idea. We need other confirmations to trade based on this pattern like moving averages, Volumes, RSI, etc.
As we can see in the above chart, the blue circle shows the formation of the Dark Cloud Cover. The prior trend was bullish and the next candle opened gap up and then selling pressure pulled price below 50% to the previous bullish green candle. The pattern formed at the resistance level so that was plus point. Also, we need to check RSI, if it is above 70 then we can make short position. Stop-loss was above the high of 2nd red candle. We can set targets at the support level or according to risk to reward. We can take entry when next candle after dark cloud pattern breaks low of the red candle and that candle should be bearish.
The above chart also shows a similar dark cloud cover. This pattern tells us the presence of bears and it will help us to take a trade on the selling side by using other confirmations.