Piercing Pattern is similar pattern like a bullish engulfing pattern with little difference. The difference in piercing pattern is that the second green candle doesn’t engulf the previous red candle completely, it engulfs more than 50% of the previous red candle but not more than 100%. Otherwise everything is similar like bullish engulfing. The second green candle after bearish candle opens gap down and shows the selling pressure.
Piercing Pattern appears in the downtrend or near supply zone. This pattern is bullish reversal pattern. If someone has to use this pattern for trading then confirmation is important.
As we can see in the above pattern, Both the candles are strong, and the 2nd green one candles engulfs the first red one candle more than 50%. This is the basic structure of Piercing Patter.
The basic thinking behind this pattern is similar to bullish engulfing pattern, But in case of bullish engulfing pattern the bulls confirm their strong presence by closing above the opening of previous red candle. But in case of piercing pattern, the bulls doesn’t confirm their strong presence. So if someone has to trade this pattern then other confirmations are important like volumes, moving averages, support and resistance etc.
Traders use this pattern to trade if this pattern appears in the downtrend and at support level. Also the next candle after the green candle in piercing pattern shows bullish signal and RSI is below 30. This confirmation is important.
As we can see above chart, blue circle shows formation of piercing pattern which appeared in the downtrend and at the support zone, after that price started moving in upward direction.
Another example shown in above chart, piercing pattern formed at the support level and from there we can see price reversed.
Trading using this patterns are risky so we need other confirmations to trade also stop loss is always there to protect our capital.