How to Make Money Trading with Candlestick Charts

Rolta reverses its downtrend
after panic selling is followed by a Piercing
signal
By now you are well trained to recognize the
Piercing signal. But look at the days
preceding that signal. The dark coloured
bodies are getting larger. Aren’t they

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shouting “panic!”?

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Dark Cloud Cover
Description
Figure 7.6
shows a Dark Cloud Cover
signal. As can be seen, the signal is formed
when a dark coloured body opens above the
previous day’s trading range and closes more
than half way into the white coloured body.

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Figure 7.6:
Dark Cloud Cover signal

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Criteria
In order for the Dark Cloud Cover signal to
be valid, the following conditions must exist:
The stock must have been in a definite up
trend before this signal occurs. This can
be visually verified on the chart.
On the second day of the signal, the
candle should open above the previous
white coloured body’s trading range and
close more than half way into it, thus
forming a black body.
Why the Reversal Works

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Consider a stock moving up. Things are rosy
and investors are happy. Then one day the
exuberance sets in forming a good sized
white candle. The next day the price gaps up
and smart money starts selling the stock to
novice traders. The selling overwhelms the
buying and finally the candle closes more
than half way into the previous white candle.
As in the case of the Piercing pattern, the
important thing to notice is that the dark
candle closes deeply, at least half way, into
the previous candle.
The following conditions make it more
convincing that the trend has reversed:
The first day’s white candle body is very
long compared to the recent trading

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range.
There is a spike in volume on either of
the two signal days.
The first white candle has gapped up
from the previous trend. This shows the
exuberance of novice traders.
Stochastics are in an overbought
condition.
The second day’s dark candle opens way
above the previous day’s trading range.
Figure 7.7
 shows a Dark Cloud Cover signal
in the chart of Allahabad Bank.

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Figure 7.7: