Piercing Candlestick Formations
Type : Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : High
Piercing Line Candlestick is a bullish reversal pattern which occurs in a down trend. This is an highly reliable candlestick pattern. After long bearish candlestick closes the price opens below the closing price of the bearish candlestick and a long bullish candlestick forms. The bullish candlestick closes below the opening price of the bearish candlestick.
How to recognize piercing line candlestick:
1) The market is in a downtrend.
2) A long bearish candlestick forms.
3) For the next candlestick the price opens below the closing price of the long bearish candlestick.
4) A long bullish candlestick appears but the price closes below the open price of the bearish candlestick forming a piercing line candlestick.
Important Factors:
1) In piercing line pattern the greater the degree of the penetration of the bullish candlestick in to the bearish candlestick the greater the reversal strength. An ideal piercing line pattern should have the bullish candlestick body penetrated more than half of the bearish candlestick body.
2) Even though piercing line candlestick pattern itself is a good reversal pattern use some other indicator to confirm it like support lines, stochastic indicator etc.
The following are some of the real time examples for piercing line candlestick pattern.
USDCHF Currency Pair:
USDCHF Hourly Chart Piercing Line Candlesticks
USDCAD Currency Pair:
USDCAD Hourly Chart Piercing Line Candlestick
USDJPY Currency Pair:
USDJPY Four Hour Piercing Line Candlesticks
NZDUSD Currency Pair:
NZDUSD Daily Chart Piercing Line Candlesticks
EURJPY Currency Pair:
EURJPY Daily Chart Piercing Line Candlesticks
How to trade the piercing line pattern:
Although piercing line candlestick pattern is a very reliable strong bullish candlestick pattern always use some other indicators to enter trading. Check the following picture. This is a NZDUSD daily chart. You can see two piercing line formations. I am using four indicators here. Bollinger Bands, Trend Lines, CCI and Stochastics.
NZDUSD Piercing Line Candlesticks Trading
1) First Piercing Line Candlestick Formation
It is formed at the bottom of the bollinger bands.
There is a support line where it formed the piercing line candlestick formation.
The CCI has crossed the -100 line and it has reached around -200 which is an indication for reversal.
The stochastics crossed below 20 line and when the piercing line candlesticks formation is completed the moving average lines of the stochastics have crossed each other.
Based on all the above factors it is a good entry.
2) Second Piercing Line Candlestick Formations
The piercing line candlestick formation is formed but not in a downtrend. If you observer the candlesticks they are in a range market.
CCI is not below the -100 line.
Stochastics is not below 20 line.
Based on the above factors it is not a good entry.
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