What Is The Piercing Candlestick Pattern & How To Trade With It

The Piercing Candlestick Pattern consists of two candlesticks. It can indicate a potential reversal from the bearish to a bullish pattern in a downtrend and reversal from bullish to bearish in an uptrend.

What is the Piercing Candlestick Pattern?

The first candle of the Piercing Pattern is bearish, while the second is the bullish candle. The bearish candle opens high and closes near the low of the bullish candle.

The bullish candle closes above the midway of the bearish candle.

The Piercing Pattern suggests that the sellers were in control of the trend, but now the buyers have taken charge, which means the price is moving upwards.

Traders look at the next candle from the bullish candle to confirm the appearance of the Piercing Pattern.

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

Piercing Candlestick Pattern on a chart
Piercing Candlestick Pattern on a chart

A key thing to remember is Piercing is a short-term pattern. This means that Piercing Pattern can only indicate trend reversals for short periods.

As the above chart illustrates, right after the Piercing Pattern formation, there is a confirmation candle, followed by a bullish candle. However, the price starts to decline after that.

Many analysts think that the Piercing Pattern can only display five bullish candles after its development.

When observing the pattern, traders notice a breakaway gap. It signifies two consecutive bullish candlesticks. The second candle shows a gap higher from the first candle’s closing price to the second candle opening price. When the Piercing Pattern precedes the breakaway gap, it is considered a possible trend reversal.

Traders can find the pattern on daily and weekly charts. However, the Piercing Pattern can take a few weeks to appear.

How to use the Piercing Candlestick Pattern?

Piercing is a bullish reversal pattern, and can generate signals for going long. After locating the pattern, buyers can enter the trade at the confirmation candle. A conformist trader may wait for the trend continuation and enter after the confirmation candle. A stop-loss is often placed near the recent low from the Piercing Pattern.

Besides this, traders who had previously held their short positions may look to exit the trade just before the Piercing Pattern’s appearance.

As mentioned earlier, the Piercing Pattern signals short-term reversals. It can’t tell about profit-targets. Therefore, for finding profit-targets, traders can use the Piercing Pattern with other indicators.

The Piercing Pattern may show a possible trend reversal if it occurs after the long downtrend. When the oscillators like the RSI or Stochastics are showing a bullish divergence, the Piercing pattern can perhaps become more meaningful.

Piercing Candlestick Pattern bullish divergence
Piercing Candlestick Pattern bullish divergence

The chart above demonstrates Stochastics showing a bullish divergence. This is an indication of a Piercing Pattern confirmation.

Piercing Candlestick Pattern trading strategy

If located, the Piercing Pattern is a fine indicator of a trend reversal. However, it is not wise to rely individually on the pattern.

The Piercing Pattern can be used on longer timeframes and for trending strategies or ranging strategies.

Piercing Candlestick Pattern buy strategy

  • Look for the pattern in a downtrend.
  • Wait for the price bar to go bullish before entering.
  • Enter at the confirmation candle.
  • Set a stop-loss near the recent low from the Piercing Pattern.
  • Exit before the price drops.
Piercing Candlestick Pattern buy setup
Piercing Candlestick Pattern buy setup

Piercing Pattern sell strategy

  • Locate the pattern in a downtrend.
  • Exit short trading positions before the Piercing Pattern.
Piercing Candlestick Pattern sell setup
Piercing Candlestick Pattern sell setup

Piercing Candlestick Pattern conclusion

The Piercing Pattern is a short-term trend reversal. The pattern can appear after a long downtrend, or there is a gap between the two candles following it. However, for confirmation of exit and entry signals, some traders may consider combining the Piercing Pattern with momentum oscillators.

The Piercing Candlestick Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.

I would prefer to use the majority of candlestick patterns such as the Piercing Candlestick Pattern on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels, candlestick pattern has been formed or a particular indicator value has been reached.

The Piercing Candlestick Pattern is just one method of market analysis amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the Piercing Candlestick Pattern into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Piercing Candlestick Pattern, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!