How to draw supply and demand zones for piercing and dark cloud cover patterns?
Zone Drawing for piercing pattern and dark cloud cover
In this lesson we will be focusing on 2nd of the most common candle patterns we see on a base which is Piercing and dark cloud cover patterns
Common candlestick patterns.
Engulfing patterns
Piercing patterns (bullish and bearish, the bearish one is known as ‘dark cloud cover’)
Harami patterns
Dojis
Morning Stars and Evening Stars
Piercing patterns
Piercing patterns are candlestick patterns in which a large candlestick is followed by a smaller candlestick whose body is located within the vertical range of the larger body but the 2nd candle is between 50-100% of first candle range. Piercing patterns can be bullish or bearish and can be a sign of a potential reversal of the current trend. Bullish piercing pattern is called as piercing pattern whereas bearish piercing pattern is also called as dark cloud cover.
HOW TO USE PIERCING PATTERNS
They are the building blocks of a trend
They usually happen at the end of an uptrend/downtrend
They can happen at flip zones and previous SR/SD zones that are being revisited.
Don’t use if pattern is in the middle of nowhere, these patterns are good reversal candlestick patterns but they need to be at bigger timeframe zones for higher probability trading
DARK CLOUD COVER AND PIERCING PATTERNS
These two patterns are similar to the engulfing pattern covered in previous episode, the main difference is that the new candle never closes above/below the previous candle’s body. The dark cloud cover is also a reversal pattern. So Zone will be slightly on the right side.
The Piercing Pattern – Dark Cloud Cover
· Piercing pattern = demand reversal pattern
· Dark Cloud Cover = supply reversal pattern
How to draw zone for Piercing & Dark Cloud Cover Patterns:
For Demand Zone
For distal line – use low of the zone
For proximal line – use high of the tightly packed body
For Supply Zone
For distal line – use high of the zone
For proximal line – use low of the tightly packed body
Remember that basing will happen in many different shapes, you have up to 6 candles at the base, shorter/longer wicks, multiple candlestick formations, etc. Each base is different and as such it should be treated independently. For more information, watch the video: https://youtu.be/IWIAjv_rYdk