Definition: Get the highest rated stock from Americanbulls for this pattern >>>
Bearish Dark Cloud Cover Pattern is a two-candlestick
pattern signaling a top reversal after an uptrend or,
at times, at the top of a congestion band. We see a
strong white real body in the first day. The second
day opens strongly above the previous day high (it is
above the top of the upper shadow). However, market
closes near the low of the day and well within the prior
day’s white body at the end of the day.
Recognition Criteria:
1. Market is characterized by an uptrend.
2. We see a long white candlestick in the first day.
3. Then we see a black body characterized by an open
above the high of the previous day on the second day.
4. The second black candlestick closes within and below
the midpoint of the previous white body.
Explanation:
Market goes up with an uptrend. Then we see a strong
white candlestick followed by a gap suggesting that
bulls retain the control. However, the rally does not
continue. Market suddenly closes at or near the lows
of the day so the second day body moving well into the
prior day’s real body. Longs are shaken somehow
and short sellers now have a benchmark to place a stop,
which is at the new high of the second day.
Important Factors:
If the black real body’s close penetrates deeper
into the prior white real body, the chance for a top
increases. There are some Japanese technicians who require
more than a 50% penetration of the black day’s
close into the white real body. If the black candlestick
does not close below the halfway point of the white
candlestick then it is better to wait for confirmation
following the dark cloud cover; and even if it does,
a confirmation may still be necessary. This confirmation
may be in the form of a black candlestick, a large gap
down or a lower close on the next trading day.
