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Bulls fight back hard - a powerful two-candle reversal that "pierces" through bearish momentum
The Piercing Line is a two-candle bullish reversal pattern that forms at the bottom of a downtrend. It shows bears losing control as bulls aggressively buy the dip, pushing price back up to close above the midpoint of the prior bearish candle.
The psychology: After a large down day, the market gaps lower at the open - bears seem in complete control. But then buyers step in aggressively, driving price all the way back up to "pierce" through more than half of the previous candle's body. This dramatic reversal shows a shift in sentiment.
The deeper the second candle closes into the first (above 50%), the stronger the signal. A close above 66% is considered very bullish.
The Piercing Line is the bullish mirror of the Dark Cloud Cover. Day 1 is a strong bearish candle - sellers are confident, the downtrend seems intact. Nothing unusual. Bears are comfortable.
Day 2 opens below Day 1's low - a gap down that initially confirms bearish sentiment. Then the reversal begins. Buyers emerge and drive price up through the entire session, closing above the midpoint of Day 1's body. The gap-down that promised more downside became a bear trap.
The penetration past the midpoint is the critical threshold. It means more than half of Day 1's sellers are now at a loss. The deeper the penetration, the more trapped sellers there are, and the more fuel exists for the reversal. When these trapped shorts cover, they accelerate the move.
Enter on close of second candle or wait for confirmation...
Below the low of the second (bullish) candle. If price drops below this level, buyers have failed to maintain their reversal attempt.
T1: The high of the first (bearish) candle. T2: Previous swing high or resistance level. T3: Measured move equal to the combined range projected upward. The deeper the penetration (>50% of first candle), the stronger the signal.
Minimum 1:2. Look for confluence with support levels to increase confidence.
The Piercing Line is a two-candle bullish reversal that works through the gap-and-reverse mechanism. The deeper Day 2 penetrates into Day 1's body, the more powerful the signal.
The deeper the penetration, the better. The bullish candle must close above the midpoint of the bearish candle - anything less is not a valid piercing line.
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