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. This candlestick pattern is used as an indicator to enter a long position or exit the sell position. This kind of pattern is formed when the bulls and bears, both are fighting to gain control over the prices.

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

The piercing line candlestick pattern is a bullish candlestick pattern that forms after an extended bearish trend. It can be used as an indicator to predict the resumption of the uptrend as it shows market indecision at support levels, which then reverses as bulls overpower bears to push prices higher again.

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

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

To analyze a specific Piercing Line pattern, observe the following:

  • The longer the two candles are, the more forceful the reversal.
  • The greater the gap down from the black candle to the white candle, the more powerful the potential reversal.
  • The higher the white candle closes on the black candle, the more probable the reversal.

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.  Piercing line patterns signal bullish reversals however, the reliance of this pattern alone is not recommended.

The ideal condition of the piercing line pattern rarely happens. The piercing line pattern has to occur at the end of a long downtrend. With that, the other conditions have to be met also. All these conditions are ideal conditions and can be rarely found.

Further support signals should be used in concurrence with the piercing pattern. Trading against a dominant trend can be risky so finding multiple confirmation signals is encouraged to verify the pattern.

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