Dark Cloud Cover

The Dark Cloud Cover pattern appears after an uptrend (or near upper price ranges) and has two candles:

Dark Cloud Cover

The first candle is white with a strong real body. The next bar open price is above the high of the previous bar, but the bar closes near the low and covers most of the prior candle’s white real body. The lower the close price of the black candle the more chances to form the high. It is considered that close price of the black candle should cover more than 50% of the prior white candle's real body.

In another words, at the first stage we see that the market is rising (white candle). Then the next candle opens above the high of the prior white candle – a bullish signal. Bulls may think that they control the situation but then price rising stops. Bears become more aggressive and the candle closes near its lows, covering most of the white candle. Bullish positions become unprofitable. Now Bears have the target for Stop Loss orders (the high of the second (black) candle of the pattern).

An example of the Dark Cloud Cover pattern

Factors that increase the importance of the Dark Cloud Cover pattern:

• The more the black candle's real body covers the white candle’s real body the stronger the pattern.
• If during a long-term uptrend white candle with a long real body and no shadows are formed and next day a black candle with a long real body and no shadows are formed then they say that there is “a black day with cut high and bottom”.
• If the second candle in the pattern opens above the important resistance level but then the price falls below this level. This means that bullish tendency is weakening and chances are that the high will be formed.
• The second bar is associated with a large volume trading and it means that the uptrend is blowing off.