online stock trading it is important to understand at laest the basics of technical analysis and stock market charts. The Piercing pattern in candlesticks stock charting is described as a bullish reversal pattern. This means that it occurs at the bottom of a downtrend and shows a reversal an a possible move upwards in prices. It does not occur after an uptrend or a sideways trend.
The first candle has a red body and the second candle has a green body. In the second time period prices gap down below the real body of the first candle, this is even better if it is below the shadow as well as the body of the first candle.
The second candle must then close above the mid point of the first candle. Confirmation is if the price trades above the high of the second candle. Sometimes the pattern fails so make sure you set stops.
The first candle was bearish, continuing the downtrend, the second candle gaps down but then the bulls get control and drive prices back up. As a result some bears may start covering positions and bulls gain more confidence. The key point is that the price must close above the mid way point of the first candle.
Candle addition is a powerful sign and by adding together the red and green candles we obtain a red hammer at the bottom of a downtrend which is a a bullish reversal pattern.
Other candlestick charts patterns : Dark Cloud Cover - Harami - Doji
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