A piercing pattern is a two candle formation. It is a bullish reversal pattern that occurs in down trends only. It is mainly found at the end of down trends or at support levels. This bullish reversal pattern happens when sellers are in control of a stock, pushing the price down and creating a large red candle. The second candle is the key to this reversal. With the second candle, the buyers regain control by pushing the stock price upward. The second candle must close at least 50% into the prior day red candle. This pattern needs confirmation with a candle close above green reversal candle. The psychology behind this being a reversal is the buyers are rejecting the lower price by immediately pushing the stock price back up. More emphasis can be given to the pattern when the second candle has an increase of volume. Additional significance can be added when this pattern occurs when a stock reaches a new low or if a stock is at a support level. We will work to provide you with as many recent examples as we can to help you identify this pattern.
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