Dark Cloud Cover - Explained
What is Dark Cloud Cover?
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Table of ContentsWhat is Dark Cloud Cover?How Does Dark Cloud Cover Work?
What is Dark Cloud Cover?
When a candle stick, either black or red casts a dark cloud over the candlestick that precedes it, this situation is called a dark cloud over. It is a bearish reversal pattern in which a black candlestick opens above their previous bullish candlestick and then closes below the midpoint of the preceding candlestick. This means that the black candlestick is hovering a dark cloud over the one that preceded it.
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How Does Dark Cloud Cover Work?
In a dark cloud cover situation, a bullish candlestick that precede a black candlestick pushes up the price at the opening of a trading session but the black candlestick (a bearish candlestick) overtakes the previous candlestick in the session and pushes the price lower, thereby, forming a dark cloud over the previous bullish stick. This is an instance of bearish reversal trend. A pattern of Dark cloud cover can be identified using the following criteria;
- A preceding bullish trend is present.
- The bullish candle gives an uptrend.
- A gap is realized in the next day
- A bearish (black) candlestick sharply overtakes the uptrend.
- The black candlestick closes below the midpoint of the preceding candlestick (a bullish candle).
When a dark cloud cover pattern occurs, it means there are both bullish and bearish trends. This is characterized by the presence of a white candlestick and a blask candlestick. When a bearish trend reversal occurs in an uptrend, a dark cloud cover has occurred. When a black candlestick hovers a dark cloud over the preceding white candlestick in the market, this is a dark cloud cover pattern. Analysts and traders use dark cloud cover patterns in the market to identify upward price movement or price trends and the underlying weakness of the uptrend through a bearish reversal trend or takeover. This takeover could also be a signal that the market is near a bearish trend.