The Basics of a Piercing Pattern

After knowing what a piercing candle is, you’ll find that they are very easy to spot on a candlestick chart.  A piercing candle usually comes to rest after a downturn that is longer than five periods on the chart.  Thus, on a one day candlestick chart, the trend would have to be more than 5 bars and exist at the bottom of a downtrend. 

What it looks like

The piercing pattern is made up of two candlesticks.  The first candlestick should be a down candlestick.  The second candle stick should be a reversal that opens below yesterday’s close and covers up half of the previous day’s losses.  If the second candlestick does not come up halfway on the first candlestick, then it is not a piercing pattern. 

The piercing pattern is profitable with proper trading execution.  The rules that follow this pattern are very important because it’s not a particularly strong indicator; dojis and morning stars are far stronger as an indicator.  Support and resistance lines should also be taken into effect and will compound on the power of this chart pattern.  Quality trades in candlestick chart patterns and effective use of the piercing pattern will yield trading success. 

How to use it

The piercing pattern is better suited for momentum trading and trading the reversing chart patterns.  A piercing pattern that occurs after a large sell off and a drop in strength is more powerful, but comes with the risk of being a runaway position.  Established chart patterns, such as double bottoms and reverse head and shoulders patterns, also aid with support.

Short term traders do well with piercing patterns

Day traders and swing traders should take well to candlestick patterns like the piercing pattern.  In the heat of trading sessions, other technical analysis indicators fail to predict the markets like candlestick patterns do.  The small intraday movements on the markets barely register with the typical indicators, but candlestick patterns fare very well in any kind of market.  The piercing pattern is a great candlestick pattern to apply to a bottoming chart and just another way to confirm a good position. 

It should be noted that candlestick charts do just as well on the long term horizon as they do short term.  A piercing pattern on the monthly chart still indicates a positive reversal, while a doji still indicates indecision.  Many people have found financial freedom trading candlestick patterns on virtually any timeframe.  Many candlestick day trading strategies can be readily and easily used on larger timeframes with a greater percentage of success.  No matter the style, candlesticks really are for any trader.  Candlestick chart patterns hold very well on any chart.