On This Page
- What are dark cloud cover and the piercing pattern?
- How to calculate candlestick penetration
- Dark cloud cover example
- Piercing pattern example
- Pattern high, pattern low and confirmation levels
- How to trade dark cloud cover: two entry plans
- Limitations of dark cloud cover and the piercing pattern
- Bottom line
- FAQ
Key Takeaways
- Dark cloud cover follows an advance: an up candle is followed by a down candle opening above its high and closing more than halfway into its body.
- The piercing example follows a decline: a down candle is followed by an up candle opening below its low and closing more than halfway into its body.
- The selected rule requires penetration strictly above 50% and below 100%; full body coverage belongs to the inclusive engulfing test.
- Both worked examples use an open beyond the prior high or low. Apply that gap condition explicitly to the selected session.
- Compute the two-bar high with max(H1,H2) and low with min(L1,L2), then choose the confirmation level.
- Calculate entry-to-stop and entry-to-target distances from the selected entry price, keeping the trigger and fill separate.
What are dark cloud cover and the piercing pattern?
Dark cloud cover and the piercing pattern are mirror-image two-candle reversal patterns. In each, the second candle opens beyond the first candle’s extreme and then closes more than halfway into the first candle’s body, without covering all of it. Dark cloud cover is the bearish version after an advance; the piercing pattern is the bullish version after a decline.
Dark cloud cover follows an advance. Its first candle closes up; its second opens above the prior high and closes down past the first body’s midpoint while remaining above its open.
The piercing pattern mirrors those relationships after a decline. Its second candle opens below the prior low and closes up past the first body’s midpoint while remaining below its open.
How to calculate candlestick penetration
For dark cloud cover, penetration = (C1 − C2) / (C1 − O1). For piercing, penetration = (C2 − C1) / (O1 − C1).
The selected rule requires a value strictly greater than 0.5 and strictly less than 1, together with the stated candle directions, preceding trend and opening gap. Full coverage at 1 or above belongs to the inclusive Engulfing test when the gap condition is also met.
Formula
Dark cloud: C1 > O1, O2 > H1 and 0.5 < (C1 − C2)/(C1 − O1) < 1. Piercing: C1 < O1, O2 < L1 and 0.5 < (C2 − C1)/(O1 − C1) < 1. Add the preceding advance or decline respectively.- Candle 1 is the prior trend candle and candle 2 is the reversal candle.
- Dark cloud cover uses a bullish candle 1, so close1 sits above open1 and the ratio measures how far candle 2 closed back down into that body.
- The piercing pattern uses a bearish candle 1, so open1 sits above close1 and the ratio measures how far candle 2 closed back up into it.
- Penetration of exactly 0.5 is the midpoint and fails the classical test, which asks for more than half of the prior body.
- With the stated opening-gap condition, penetration of 1 or greater gives full body coverage under the inclusive engulfing test.
Dark cloud cover example
The three displayed sessions advance toward a prior swing high. Day 3 has O $48.60, H $52.45, L $48.40 and C $52.20. Day 4 has O $52.80, H $52.95, L $49.85 and C $50.05.
- Candle 1 real body: $48.60 open to $52.20 close, a $3.60 up body
- Body midpoint: ($48.60 + $52.20) / 2 = $50.40
- Candle 2 opens at $52.80, above the $52.45 candle 1 high, and closes at $50.05, below the $50.40 midpoint
- Penetration: ($52.20 − $50.05) / ($52.20 − $48.60) = 2.15 / 3.60 = 0.597, or 59.7 percent of the prior body
- The $50.05 close stays above the $48.60 candle 1 open, so the bodies do not engulf
- Two-bar high = max($52.45,$52.95) = $52.95; two-bar low = min($48.40,$49.85) = $48.40
- For an intrabar plan, assumed short entry $48.39 and stop reference $52.96 give a $4.57 distance per share
- Piercing mirror: candle 1 O $52.20, H $52.40, L $48.35, C $48.60; candle 2 O $48.00, H $50.95, L $47.85, C $50.75. Penetration = $2.15 / $3.60 = 59.72%.
Dark cloud cover meets the opening-gap and 50%–100% penetration tests. Day 5 closes at $48.20 below the $48.40 pattern low. For a separate intrabar plan with an assumed $48.39 short fill, $52.96 stop reference and $44.90 target, the distances are $4.57 and $3.49, a 0.76 ratio. A second-candle-low plan with assumed entry $49.84 uses distances $3.12 and $4.94, a 1.58 ratio. Each plan uses its own entry rule and price.
Piercing pattern example
The prior down body runs from $52.20 to $48.60. Its high is $52.40 and low $48.35.
The next candle opens at $48.00 below that low and closes at $50.75, penetrating 59.72% of the $3.60 body. Its high is $50.95 and low $47.85.
The following session closes at $52.60 above the full pattern high of $52.40, completing the mirrored confirmation rule.
Pattern high, pattern low and confirmation levels
Take max(H1,H2) for the pattern high and min(L1,L2) for its low. An opening gap identifies the new open’s location; the subsequent high and low determine the completed range.
A rule using the second candle’s extreme and a rule using the full pattern extreme can activate at different prices. State the chosen event and use its actual entry plan in the arithmetic.
How to trade dark cloud cover: two entry plans
For a dark-cloud intrabar plan, assume a $48.39 short fill, $52.96 stop reference and $44.90 target. Entry-to-stop distance is $4.57 and entry-to-target distance $3.49, giving a 0.76 ratio.
For a separate second-candle-low plan, assume a $49.84 fill with the same stop and target. The distances are $3.12 and $4.94, giving a 1.58 ratio.
A plan waiting for the completed $48.20 close uses its own subsequent entry. Keep that entry distinct from both intrabar assumptions.
Locate the setup at Support or Resistance, then compare supported options structures in the Options Profit Calculator using the target, timing, premium and volatility inputs from the chosen plan.
Limitations of dark cloud cover and the piercing pattern
- Confirm the preceding trend first. Without an advance or decline, the shapes carry no reversal reading.
- Apply the thresholds exactly. A close exactly at the midpoint fails the test, and a close past the first candle’s open turns the pair into an engulfing pattern, so a few cents can change the label.
- State the opening condition in the rule. This page requires an open beyond the prior high or low, while a looser version compares the open only with the prior close.
- Calculate each entry plan on its own. The intrabar plan and the second-candle-low plan give ratios of 0.76 and 1.58 from the same two candles.
- Set the stop beyond the pattern extreme before entry. It defines the planned loss if price resumes the earlier trend.
Bottom line
Dark cloud cover and the piercing pattern mark a gap beyond the prior extreme that reverses and closes inside the prior body beyond its midpoint, a two-candle signal against the preceding move. Check the trend, gap and penetration exactly, confirm with a close beyond the pattern extreme, and calculate every plan from its own entry, stop and target.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Fidelity: Identifying Chart Patterns (Technical Analysis session 3)
- Thomas N. Bulkowski, The Eight Best-Performing Candles (Stocks & Commodities, hosted by Fidelity)
- Benjamin R. Marshall, Candlestick Technical Trading Strategies: Can They Create Value for Investors? (PhD thesis, Massey University)
How entries are sourced, calculated and updated: editorial methodology.