Get to know the Candle Piercing Line.

Get to know the Candle Piercing Line.

Piercing line is a bullish reversal pattern which is often used as a reference for reversal from a downtrend to an uptrend. Piercing line is a pattern on a price chart that shows a potential price increase in the future.

The piercing line pattern is a candlestick pattern that indicates a reversal from a downtrend to an uptrend. This pattern is often found at the end of a downtrend and is often a sign of a potential reversal in the short term.

This pattern consists of two candlesticks so it is called a double candlestick. The first candlestick is a bearish candle, while the second candlestick is a bullish candle. Between the first and second candlesticks there is a gap down.

The piercing line is formed because the price of the second open candle is below the close of the first candle. In addition, the close of the second candle passed the close point of the body of the first candle. In detail, the following forms the piercing line pattern:

The piercing line pattern shows a two-day trading period. On the first day, sellers dominate the market while the second day is dominated by buyers. This shows an indication that the assets that market participants want to sell have decreased slightly, so that asset prices have increased. This dynamic seems to be a reliable indicator for near-term upside forecasts.

This pattern is preceded by a downward price trend. Downtrends can only occur in a short time. However, if this pattern is formed when the price is in an uptrend, this pattern cannot be a reference for entry buys. This pattern is more often found in stock price movements than forex.

However, you can still find this formation in various trading instruments. The second candle in this formation should close above the middle of the first candle as it indicates that buyers have entered the market in that heart.

The first candlestick is usually red which indicates the asset price is falling. Meanwhile, the second candle is usually green, which indicates the price of the asset, closed higher than its open. In detail, the following are the characteristics of the piercing line pattern:

formed at the end of a downtrend
the first candlestick is a bearish candle
the second candlestick is a bullish candle
there is a gap down between the first candle and the second candle
the second candlestick closes more than half of the body of the first candlestick.

The first thing we have to do is pay attention to the characteristics of the candle pattern that is formed. So, make sure the piercing line pattern is formed when the trading instrument is in a downtrend. Then make sure the first candle is a bearish candle and the second candle is a bearish candle. After that, wait until the first and second candles have gaped down. Then make sure the second candlestick closes above 50% of the body of the first candlestick. If these conditions are not met, it indicates that the candlestick pattern that is formed cannot be used as a strong reference for a buy entry.

To open a long position, you have to wait until the second candlestick closes. After that, you can make a buy entry right when the second candle closes.

Stop loss is needed to minimize losses. You can place a stop loss position below the low of the first candle.

After following the three steps above, you can profit from using the piercing line pattern. To make it easier for you to understand how to trade with a piercing line, you can pay attention to the image below:

In the picture above, the trading instrument is moving in a downtrend. Then two candle formations appear, where the first candle is bearish and the second candle is bullish. Between the first candle and the second candle there is a gap down, then the second candle closes above 50% of the body of the first candle. After that, a buy entry can be made when the second candle closes. To minimize losses, we can place a stop loss below the low of the first candle.