Multiple Candlestick Patterns Insights and Strategies Boost Your Trading

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The Piercing Pattern

The piercing pattern is similar to the bullish engulfing; however, the engulfing should be between 50% and 100%. This can be seen visually or calculated. For example, P1’s Open-Close range should be 12, while P2’s must be greater than 6 but less than 12.

Provided the criterion is fulfilled, this trade set-up has similarities to the bullish engulfing: a risk taker may initiate the trade on P2 near closing, while a more conservative trader may wait until they verify a blue candle before beginning the next day. The stop loss is found at the bottom of the pattern.

The Dark Cloud Cover

The dark cloud cover bears a similarity to the bearish engulfing pattern but with a subtle variation. In the latter case, the red candle on P2 encompasses all of P1’s blue one; in contrast, the dark cloud cover reflects just 50- 100% of it. The trade set-up itself is identical to that of the bearish engulfing pattern. Think of it as a reversal of a piercing pattern.

A perspective on selecting a trade

Generally, stocks belonging to the same sector tend to experience similar price movements. This can be seen by looking at two pairs such as TCS and Infosys or ICICI Bank and HDFC Bank. They are largely equal in terms of size and business, and their performance is affected by the same external factors. However, although their price changes may be similar, they won’t always match perfectly. 

For example, if the banking sector sees a negative article, it’s likely that banking stocks will decrease – Axis Bankmight see a drop of 3%, but SBI’s stock could go down by 2% or even 1.5%. As a result, both stocks could form different patterns on their candle charts – for instance, a bearish engulfing or dark cloud cover.

These two patterns are clearly identifiable. When making a trade, I would prefer to bet on the bearish engulfing pattern instead of a dark cloud cover- its energy is more powerful due to engulfing the earlier day’s full candle. 

While this selection criterion is mostly adhered to, I will introduce a 6-point trading checklist later in this module. If the trade satisfies 3-4 of these points, it may be qualified for consideration. For instance, if ICICI Bank stock showed a piercing pattern and HDFC Bank a bullish engulfing one, the latter may be more tempting to pursue. 

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