What Is The Dark Cloud Cover Candlestick Pattern & How To Trade With It

The Dark Cloud Cover is a reversal trading pattern that can indicate a possible bearish trend. The pattern shows a change in momentum from upside to downside. You can identify a dark cloud cover candlestick pattern when a large black candle forms a “dark cloud” over the previous day’s candle. This candlestick pattern is easy to identify because its formation reflects its name. The Dark Cloud Cover pattern is the opposite of the Piercing pattern (which is a bullish reversal candlestick).

What is the Dark Cloud Cover Candlestick Pattern?

The formation of the Dark Cloud Cover takes place when a bearish candle follows a bullish candle. The bearish candle opens above the close of the bullish candle and closes below the middle of the bullish candle.

The candle next to these two candles is a bearish candle, which confirms the pattern’s development.

Here’s what the pattern looks like on the chart:

Dark Cloud Cover Candlestick Pattern on a chart
Dark Cloud Cover Candlestick Pattern on a chart

The two candles have a large body and appear in an uptrend. When the pattern emerges with the large candles, it is seen as a potential reversal signal. Also, the two candles have a little or no upper and lower wick.


As the bearish candle covers the bullish candle, it resembles the covering of a dark cloud.

The pattern shows that, at first, the buyers push the price higher. But then, the sellers take charge and push the price downwards.

Traders confuse the Dark Cloud with the Bearish Engulfing Pattern. Both patterns suggest a bearish reversal, but the Dark Cloud defines an ideal entry-level because of the higher close of the bearish candle against the bullish candle.

How to use the Dark Cloud Cover Candlestick Pattern?

Most traders apply the Dark Cloud Cover when there is a strong uptrend or when the price moves upwards. This tells traders that there may be a potential price declination.

The close of the bearish candle suggests exiting long positions. However, a conservative trader may wait for the exit, if the price continues to decline.


When going short, traders enter the trade at the close of the bearish candle. A stop-loss is placed near the high from the Dark Cloud Cover.

The pattern doesn’t mention a profit-target. Therefore, traders use other technical analysis to exit the short trade.

One of the popular approaches for exiting short trade is combining the Dark Cloud Cover with oscillators like the RSI or Stochastics. For example, if the Stochastics is below the 30 level, it can be a sign of an oversold condition, and traders could look to exit the short trade.

Dark Cloud Cover Candlestick Pattern oversold condition
Dark Cloud Cover Candlestick Pattern oversold condition

In the above chart, with the Dark Cloud appearance, the Stochastics is describing an oversold condition. This can be a confirmation of a bearish trend.

Although the pattern can appear frequently, I believe that I useful way is to look for the Dark Cloud Cover on longer timeframes for more reliable data. An average period of one month is considered beneficial.


Dark Cloud Cover Candlestick Pattern trading strategy

The market psychology of the bearish piercing line is explained next. The market is moving upwards when a large bullish candle appears making a new high. The next day the price gaps upward making yet another new high, so far the bulls have been completely in charge. However, instead of the price continuing to go higher, the price begins to sell off and sells off so much that it ends up eliminating over half of the gains of the bullish candle on the previous day. Essentially the new highs of the past uptrend have been rejected, the bears have had enough.

One of the popular ways to utilize the Dark Cloud Cover is to trade on the range or trending markets. This is because the Dark Cloud can generate false signals.

As with most trend reversal patterns, the dark-cloud cover pattern becomes more reliable depending on where it appears on the price chart in relation to trendlines, pivot points, and support and resistance lines, etc. A dark-cloud cover pattern at or near a trendline or a resistance line can be used as confirmation that the test of the trendline is more likely to fail. The high point of the dark-cloud cover pattern can also serve as a resistance line, and a possible location for a stop loss.

Dark Cloud Cover Candlestick Pattern buy strategy

  • Look for the pattern in an uptrend.
  • Exit long positions at the close of a bearish candle or the confirmation candle.
Dark Cloud Cover Candlestick Pattern buy setup
Dark Cloud Cover Candlestick Pattern buy setup

Dark Cloud Cover Candlestick Pattern sell strategy

  • Locate the pattern in an uptrend.
  • Wait for the price bar to go bearish before entering.
  • Enter the trade at the confirmation candle.
  • Place a stop-loss near the recent high from the Dark Cloud Cover.
  • Exit the trade before the price rises.
Dark Cloud Cover Candlestick Pattern sell setup
Dark Cloud Cover Candlestick Pattern sell setup

 

Dark Cloud Cover Candlestick Pattern conclusion

The dark cloud cover refers to a candlestick pattern in technical analysis that is a bearish reversal signal. It is observed when a “down” candle opens above the close of the previous “up” candle and proceeds to close below the midpoint of the “up” candle within a candlestick chart.


The Dark Cloud Cover Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall forex trading strategy. The Dark Cloud is an indicator of a bearish trend and is handy for trend and range trading.

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