The Piercing line is a two candle reversal pattern, which is one of the best performing ones. Generally Piercing Line denotes a bullish reversal pattern as the bearish version is called as the Dark Cloud Cover. The first candle of the pattern follows the prevailing trend strongly, followed by a counter trend candle. In the bullish version, the first candle is a strong black candle, followed by a strong white candle that opens with a gap down but closes above the mid-line of the previous candle. The filling of the gap and the recovery of most of the loss signifies strong bullish sentiment.
Most Used Trends of Piercing Pattern
Advantages & Limitations of Bullish & Bearish Piercing Pattern
With every two instances out of three performing well, it must be considered as one of the top performers among the reversal patterns. Tall candles improve the performance as the length of the candles increase with the reversal in sentiment. The performance also improves if both the candles break and then reverse a Bollinger Band. In the bullish version, if the first bearish candle closes below the lower boundary of the Bollinger Band, followed by the second candle closing firmly above the lower band, the probability of a sustained rally increases quite a bit.