Important Stocks To Watch - Breakout Stocks/ Important Developments

Long Term Breakouts To Watch

Stocks At 50 MA & 200 MA

Dark Cloud Cover Candlestick Pattern

The dark cloud cover candle pattern is a bearish reversal pattern that often appears at the end of an uptrend. It can be very effective in spotting a reversal, the start of a downtrend or a correction. Traders often look for these kind of patterns to spot a top in their stock. Many will take profits when this pattern appear. Some will even short the stock if the dark cloud cover pattern appear at a resistance.

dark cloud cover candlestick pattern

The diagram above shows the construction of the dark cloud cover candlestick pattern. The pattern will usually appear at the end of an uptrend or rally. The sentiment is extremely bullish and at the last day, the stock gapped up powerfully because of the greed of market participants. Then before you know it, the stock moves lower and closes at least 50% into the body of the previous green candle. The red candle does not close below the low of the green candle, otherwise it will be known as another candlestick pattern by the name of bearish engulfing.

The psychology behind this pattern is very simple. There was a lot of bullishness in the stock but suddenly the bulls cannot keep control and you see bears creeping in. What was so good suddenly became very bad and as the stock drops below the pattern, it gives traders the confirmation that the bears are taking control of this stock. That's why when a trader sees this pattern being confirmed, he or she will exit the stock and some might even consider shorting this stock.

In the chart above, CINF formed a dark cloud cover after a prolonged period of rising stock price. When the stock fell below the pattern, this confirmed the validity of the pattern and marked the short term top for this stock. Look how this stock collapsed.

COG in the chart above formed a dark cloud cover pattern at a resistance area. When a bearish reversal candlestick pattern forms at a resistance area, you need to take care and beware. The stock eventually collapsed and the dark cloud cover marked a short term top for this stock.

A dark cloud cover that appears in a downtrend rally can often signal another wave of selling. In the chart above, CTL rallied for awhile and then a mini dark cloud cover formed in the stock right at the 20 MA. This gave hints to traders that there might be another wave of selling. The signal was so powerful that the stock gapped down the next day and move lower for the next week.

A dark cloud cover appeared in EXR after a short rally. The bearish reversal pattern worked very well in the stock and hinted of a short term top. The stock immediately corrected for the next few days.

Sometimes the dark cloud cover pattern can really mark the top of a move very well. Around January, FTI exhibited a dark cloud cover pattern and the pattern marked the exact top for the stock before the correction kicked in. When you have such a potent reversal pattern that works quite well, it will be foolish for traders to ignore this pattern when it appears in their stock.

  • Help support this page and press the Facebook Like button below. Thanks!

Join Dstockmarket's Facebook Page 

Recent Articles

  1. Stock Market Analysis May 2022

    May 30, 22 07:20 AM

    What is the market doing and what is it likely to do?

    Read More

  2. April 2022 Stock Market Analysis

    Apr 27, 22 09:01 AM

    As we enter April, will we continue to move higher or will there be a correction coming?

    Read More

  3. Technical Analysis Of AAPL : Making Sense Of Apple's Stock Price

    Apr 13, 22 11:46 PM

    Apple is one of those stocks that we should look at almost every day. The reasons is because it is a component of the Dow Jones, the S&P 500 and the Nasdaq.

    Read More

  4. Stocks At Their 50 MA And 200 MA

    Apr 12, 22 09:38 AM

    Here are a list of stocks that are at their 50 MA and 200 MA. The 50 day moving average and 200 day moving average can be a support area where stocks bounce off

    Read More

  5. Stocks To Watch - Important Developments

    Apr 12, 22 09:34 AM

    Here are a list of stocks that have broke out or about to break out. Breakout stocks can often give us a good reward to risk ratio.

    Read More

New! Comments

Have your say about what you just read! Leave me a comment in the box below.