Piercing patterns are two candlestick patterns that form during a downtrend. Piercing patterns can be used as an indicator to buy a long position or close a short position.
While piercing patterns can signal a bullish reversal, you need other indicators to confirm the move. This pattern is formed because the bulls and bears are fighting for control.
The tug of war caused by buyers and sells form Japanese candlesticks patterns. We use these patterns to trade. The patterns we trade are made up of candlesticks that tell as story.
The piercing pattern is formed when the bulls come in to stop a downtrend. Price is falling but the bulls come in to push it up.
The first day is a red day. The next day opens with a new low but closes at the midpoint of the real body of the first day.
The second candle tends to be green because of the bulls. The real body of a candle is made up of the open and close of the price. The upper and lower wick is the high and low of the day.
The piercing pattern gets it’s name because bulls come in to pierce price through the falling trend. It’s an important pattern to pay attention to.
As stated earlier, you need more then just that pattern to confirm the reversal. Patterns fail all the time and 2 candle patterns are no different.
PIERCING PATTERNS – BIG PATTERNS AND THE SMALL PATTERNS
Piercing patterns may indicate that a bullish reversal is imminent but it doesn’t always shape up that way. Placing an order based off of one small pattern is a great way to blow up your account.
There are small patterns that form inside larger patterns all the time. You may have a bullish reversal pattern form but is it inside a larger bearish pattern?
It’s good to look at larger timeframes like the daily chart. This allows you to see the bigger picture. You can spot the symmetrical triangle patterns or bull pennants and bear pennants. Zoom in and see patterns like the cup and handle or head and shoulders pattern.
You can then zoom in again and see the even smaller patterns like piercing patterns or shooting star patterns. Candlesticks not only tell a story by themselves, the group together tell bigger stories.
PIERCING PATTERNS – TECHNICAL ANALYSIS
You can’t buy or sell a stock based off piercing patterns alone. While they do indicate when you should buy a stock or close your short position, you need conformation.
Confirmation is given by indicators such as moving averages, MACD (moving average convergence divergence) and RSI (relative strength index). Moving averages such as the simple moving average formula act as support and resistance.
If you get a reversal pattern and it doesn’t reverse right away or at all, take a look at the moving averages. Look at RSI and MACD also. They could be showing something different than that pattern.
We have these tools that allow us to get a clearer picture of what’s happening. They can’t predict what will happen though. If they did, everyone would be a trader who never lost money.
PIERCING PATTERNS – HOW TO TRADE THEM
Like any pattern piecing patterns are good to pay attention to. If you’re swing trading the pattern, you need confirmation. As you can see form the charts above, the reversal didn’t happen right away.
Pay attention to technical indicators and bigger patterns. That might seem like a lot but that’s trading. No trader is 100% successful. If they tell you they are, they’re lying.
Study patterns, candlesticks and technical analysis. Open a simulated account and practice trading in there before using real money.
You learn what mistakes you’re making and how to fix them. You’ll be a much better trader that way. In the end isn’t that the goal?
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