dark cloud cover

Traders typically suggest not selling exactly when one sees the Dark Cloud Cover Pattern (Day 1 & Day 2) until other confirming signals are given such as a break of an upward trendline or other technical indicators. One reason for waiting for confirmation is that the Dark Cloud Cover Pattern is a bearish pattern , but not as bearish as it could be: part of the gains from Day 1 have still been preserved.

The Bearish Engulfing Pattern (see: Bearish Engulfing Pattern) can be viewed as a more bearish formation, it completely rejects the gains of Day 1 and usually closes below the lows of Day 1.

Dark Cloud Cover is a bearish candlestick reversal pattern, similar to the Bearish Engulfing Pattern (see: Bearish Engulfing Pattern). There are two components of a Dark Cloud Cover formation:

dark cloud cover candlestick chart pattern
Bullish Candle (Day 1)
Bearish Candle (Day 2)
A Dark Cloud Cover Pattern occurs when a bearish candle on Day 2 closes below the middle of Day 1's candle.

In addition, price gaps up on Day 2 only to fill the gap (see: Gaps) and close significantly into the gains made by Day 1's bullish candlestick .

The rejection of the gap up is a bearish sign in and of itself, but the retracement into the gains of the previous day's gains adds even more bearish sentiment. Bulls are unable to hold prices higher, demand is unable to keep up with the building supply.
Comment: Here upward trend line is broken but the price now testing the trend line, even it may pierce into the trend line, if it is unable to hold price above the trend line short term reversal of the trend gets confirmed, so one has to wait for confirmation to go short
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