WEBVTT 0 00:09.900 --> 00:18.030 Dark cloud cover and piercing pattern are gap patterns, that means that they need a gap between two 1 00:18.030 --> 00:19.220 candles. 2 00:19.770 --> 00:21.220 What is a gap? 3 00:21.390 --> 00:23.310 A gap is an empty space 4 00:23.310 --> 00:26.210 you can see between two candlesticks. 5 00:26.400 --> 00:33.000 It appears on the chart because the price movements during that time have not been registered by the 6 00:33.000 --> 00:34.210 platform. 7 00:34.500 --> 00:40.070 It usually appears during the weekends because the Forex market is closed, 8 00:40.080 --> 00:43.730 but of course the currency rates are still moving. 9 00:44.190 --> 00:50.710 With this brief introduction about the gaps we can start having a look at these two patterns. 10 00:50.730 --> 00:54.210 Let's start with that dark cloud cover. 11 00:54.480 --> 00:58.490 So the dark cloud cover is a bearish reversal pattern 12 00:58.650 --> 01:02.180 and it is composed of two candlesticks. 13 01:02.220 --> 01:05.230 The market must be in an uptrend. 14 01:05.280 --> 01:10.100 Once again this condition is very very important. 15 01:10.140 --> 01:18.120 The first candle must be green and the second candle must be red, then the market gaps higher on the 16 01:18.150 --> 01:20.220 open of the second candle. 17 01:20.340 --> 01:27.750 So there is a gap between the first and the second candle. Last condition is that the real body of the 18 01:27.750 --> 01:32.970 second candle must close into the body of the first candle. 19 01:33.000 --> 01:39.780 Many traders also include that the second candle must close in the first half of the real body of the 20 01:39.780 --> 01:42.650 first candle. 21 01:42.720 --> 01:50.260 Ok, it looks a bit complicated but it's not really that hard. If you can follow me just another minute, 22 01:50.400 --> 01:57.840 I introduce the piercing part and then I will show the logic of both patterns and my considerations 23 01:57.900 --> 02:06.360 about them. The bullish equivalent of the dark cloud cover pattern is the piercing pattern. 24 02:06.780 --> 02:13.980 So for this pattern, the market must be in a downtrend and the first candle must be red, in line with 25 02:13.980 --> 02:15.690 the downtrend. 26 02:15.690 --> 02:20.790 The second candle must be green and this time the gap is a gap low, 27 02:20.970 --> 02:27.210 that means that the second candle starts at an opening price that is lower than the closing price of 28 02:27.210 --> 02:29.000 the first candle. 29 02:29.160 --> 02:36.300 Once again, last condition is that the second candle closes into the body of the first candle. 30 02:36.300 --> 02:43.680 And we may add that it needs to close above the first half of the real body of the first candle. 31 02:43.860 --> 02:51.270 We have always analyzed the patterns from a logical perspective trying to understand the reason of the 32 02:51.270 --> 02:56.060 formation and where supply and demand may be addressed. 33 02:56.070 --> 03:00.130 I will give you the logical explanation for these two patterns, 34 03:00.330 --> 03:07.530 but this time I will also make an exception and will also provide you with an historical background because 35 03:07.530 --> 03:12.820 I believe that it is necessary to fully understand these two signals. 36 03:13.260 --> 03:17.550 Let's start with what this pattern is saying to us. 37 03:17.640 --> 03:24.980 The market is in a downtrend and the first candle of the piercing pattern is confirming the downtrend. 38 03:25.020 --> 03:33.840 When the market opens again there is a gap low. This gap low can be considered as a question mark. 39 03:33.840 --> 03:40.030 It means: "how will traders react to this unexpected new price?". 40 03:40.230 --> 03:44.610 The second candle of the pattern represents the answer. 41 03:44.640 --> 03:51.870 If the candle is able to fill the gap and also close into the real body of the first candle that means 42 03:51.870 --> 03:54.090 that buyers found convenient 43 03:54.120 --> 04:02.820 the unexpected new price after the gap low. So they opened long positions at the new price, increasing 44 04:02.820 --> 04:06.900 the demand and pushing the currency pair higher. 45 04:06.930 --> 04:13.750 We can say the same for the dark cloud cover. The first candle is confirming the uptrend. 46 04:13.920 --> 04:21.510 The gap then represents the question: "how will traders react to this unexpected new price?". 47 04:21.750 --> 04:24.900 The second candle represents the answer. 48 04:24.900 --> 04:31.770 If the price goes down and the candle fills the gap and closes into the real body of the first candle, then 49 04:31.800 --> 04:39.550 sellers had a reaction to this new price, they sold the pair increasing the supply. 50 04:39.570 --> 04:45.170 They look very logical and actually they are and they are also very good signals 51 04:45.180 --> 04:52.350 from my experience, but unfortunately we will not use them a lot and we need to have a look at the historical 52 04:52.350 --> 04:59.400 background of candlesticks to understand why dark cloud cover and piercing pattern will not be very 53 04:59.400 --> 05:01.980 useful for our trading. 54 05:02.140 --> 05:08.280 Candlesticks are used to monitor and study the prices in any financial markets. 55 05:08.810 --> 05:12.520 They were created in Japan to track the price of the rice. 56 05:12.530 --> 05:17.210 So of course they were not created initially for the forex market. 57 05:17.330 --> 05:23.470 Most of the patterns that you are learning in this course go beyond the forex market. 58 05:23.510 --> 05:31.010 They can also be applied to study other financial markets like the stock market for example. Dark cloud 59 05:31.010 --> 05:38.840 cover and piercing pattern are two examples of patterns that are very useful in other financial markets 60 05:39.200 --> 05:41.180 but not Forex. 61 05:41.270 --> 05:49.750 This is simply because of a characteristic of the forex market. Forex market is open 24 hours per day. 62 05:49.790 --> 05:53.770 It doesn't close and then reopens the next day. 63 05:53.810 --> 06:02.070 So it is very hard to find gaps and, for this reason, it is very hard to find these two patterns. 64 06:02.450 --> 06:07.300 Here we have Apple on a daily chart quoted on the Nasdaq, 65 06:07.430 --> 06:10.460 that is an American Stock Exchange. 66 06:10.460 --> 06:13.810 Why does this chart have so many gaps? 67 06:13.880 --> 06:21.610 Because Nasdaq is open from 9:30 in the morning to 4:00 p.m. When the market reopens at 9:30 68 06:21.610 --> 06:27.520 of the following day, price might be different from the previous close. 69 06:27.680 --> 06:34.580 If you have a closer look at the chart, you can see a piercing pattern right here and the signal also 70 06:34.580 --> 06:36.110 did a good job. 71 06:36.830 --> 06:43.860 Going back to the Forex market, I want to express my final words about this two patterns. 72 06:44.120 --> 06:45.500 In my experience, 73 06:45.530 --> 06:53.480 it is very rare to find a dark cloud cover or a piercing pattern in a Forex chart, but when they 74 06:53.480 --> 06:58.100 appear, they are usually powerful reversal signals. 75 06:58.100 --> 07:01.960 So you can definitely use them to analyze the market.