Piercing Patterns

How to Trade a Piercing Pattern

Piercing patterns are two candlestick patterns at the bottom of downtrends or near support areas. The second candle pierces halfway into the first bullish candle, signaling a potential reversal to the upside. Look for the price to break above the second bullish candle and hold to confirm reversal and possible new bullish trend. 

What Are Piercing Patterns?

A piercing pattern consists of two candlesticks that form near support levels where the second candle pierces into half or part of the first candle. Typically, when the second candle forms, it creates a bullish reversal pattern. Traders can take an entry long at the break above the second candle and use a close below it as a stop loss area.

These two candlestick patterns form during a downtrend and show signs of a potential bullish reversal. The piercing pattern 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 due to indecisiveness; the bulls and bears fight for direction control.

The piercing pattern is formed when the bulls come in to stop a downtrend. The price is falling, but the bulls come in to push it up.

Piercing Pattern Example

Basics

The first day is red. The next day opens with a new low but closes at the midpoint of the first day’s real body.

The second candle tends to be green because of the bulls. The real body of a candle comprises the opening and closing of the price. The upper and lower wick is the high and low of the day.

The piercing pattern gets its name because bulls come in to “pierce” price through the falling trend. It is an important pattern to learn, understand, and recognize.

As stated earlier, traders need more than just that pattern to confirm the reversal. Patterns fail all the time, and two candle patterns are no different. If uncertain, it is always best to wait for confirmation. Below are some helpful tips for trading this type of pattern.

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Trading Piercing Patterns

  • Watch for 1st bearish candlestick to form.
  • Next, watch for 2nd bullish candlestick to pierce half or part of 1st candle.
  • Then, watch for 3rd candlestick to break above the 2nd
  • Traders take a long position once the price breaks above the 2nd candlestick
  • Place stop below the base of the 2nd candle
  • Some traders take a short position once the price breaks below 2nd candle
  • Then place a stop above the 2nd candle

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