The Dark Cover Candlestick Pattern is one of the commonly observed patterns when making a technical analytical chart for binary options trading. Investors who spot this pattern are able to use it to inform their trading and to maximise their profits.
Candlesticks are one way of visualising the movement of asset prices. There are two candlestick types: Bullish candlesticks, which are generally white or green, and which are formed when the closing asset price is higher than its opening price; and Bearish candlesticks, which are generally black or red in colour, and which are formed when the asset’s closing price is lower than its opening price.
What Does the Dark Cover Candlestick Pattern Indicate to Traders?
Dark Cloud Cover is a form of Bearish candlestick pattern which is quite alike to the Bearish Engulfing Candlestick Pattern. There are two parts to a Dark Cloud Candlestick Pattern – the Bullish candlestick which appears on day one, and the Bearish candlestick pattern which occurs on the second day.
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Traders can identify a Dark Cloud Cover Candlestick pattern when the Bearish candlstick that occurs on the second day closes below the centre of the first day’s candle. Also, the price will gap up on the second day only to fill the fap, closing significantly into any gains made by the Bullish candlestick of day 1. This rejection of the gap is actually a Bearish sign in itself, however the retracement into the previous day’s gains only increases the Bearish sentiment. The Bull is unable to hold the price higher and demand cannot keep up with the increasing supply.
The Dark Cloud Cover Candlestick pattern will occur during an uptrend, with the first candle being white and the second candle being black. The confirmation of this pattern will come from observing the candles which follow this pattern. When this pattern is observed, it is an indicator of a reversal in the market trend and can be used to inform the investor’s future trades.
How to Trade the Dark Cloud Cover Candlestick Pattern
Of course, it is essential when engaging in binary options trading to not only be able to correctly identify a pattern in the analytical chart but also to know how to interpret it properly and therefore know what type of trade to execute in order to take advantage of this knowledge and maximise profit.
Usually, traders suggest that they do not sell their assets immediately the Dark Cloud Cover Candlestick Pattern is spotted in their chart over the first and second day, but that they wait until they spot other signals which would confirm that they have correctly identified the pattern. These signals would include a break of the upward trendline, but there are other technical indicators which may also show that the identfication of this pattern is the right one. One of the primary reasons for waiting for further confirmation is that although the Dark Cloud Cover Pattern is Bearish, it could become more Bearish, as part of Day One’s gains are still preserved.
As the second candlestick has an opening price that is higher than the first candlestick, this indicates that drops are likely to occur, and therefore traders should place a put option for the term that is indicated by the candlestick. Should you be using 60 second candlesticks on your technical analytical charting software, the 60 second put option would be a good choice, while if you are using 2 minute candlesticks, the 2 minute put option is the right one etc.
There is also a Bullish equivalent to the Dark Cloud Cover Pattern, and this is known as the Piercing Pattern.
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