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Storm clouds rolling in - a bearish reversal that covers the prior bullish candle
The Dark Cloud Cover is a two-candle bearish reversal pattern that forms at the top of an uptrend. It's the bearish counterpart to the Piercing Line - showing bulls losing control as bears push price back down into the prior bullish candle.
The psychology: After a large up day, the market gaps even higher at the open - bulls seem unstoppable. But then sellers overwhelm buyers, driving price all the way back down to close below the midpoint of the previous candle. Like a dark cloud covering the sun, the bullish sentiment is suddenly overshadowed.
The deeper the second candle closes into the first (below 50%), the stronger the signal. A close near the first candle's open is considered very bearish.
The Dark Cloud Cover is the bearish answer to the Piercing Line. Day 1 is a strong bullish candle - buyers are confident, the uptrend feels healthy, and optimism is high. Everything looks like business as usual.
Day 2 gaps up at the open, reinforcing bullish sentiment. But then something shifts. Sellers emerge and drive price down through the day, closing below the midpoint of Day 1's body. The gap-up that promised continuation became a trap.
The psychology is devastating for bulls. They saw the gap up and felt validated. Then they watched their gains evaporate in a single session. The close below the midpoint of Day 1 means that more than half of yesterday's buyers are now underwater. Fear replaces greed.
Enter short on close of second candle or wait for break...
Above the high of the bearish (second) candle. This is the pattern's highest point - a break above negates the reversal.
T1: The open of the first (bullish) candle. T2: Previous swing low or support level. T3: Measured move equal to the range of the two-candle pattern projected downward.
Minimum 1:2. The deeper the penetration into the first candle's body, the better the R:R setup.
The Dark Cloud Cover is a two-candle bearish reversal that depends on the gap-up and the depth of penetration. The deeper Day 2 closes into Day 1, the more powerful the signal.
Must open above the previous high and close below the midpoint. If it doesn't penetrate deep enough, the sellers aren't in control yet.
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