How to Trade the Piercing Line Pattern Trading Strategies
Explore our Trade Together program for live streams, expert coaching and much more. Take profit should be placed at the highest level of the last trend as the markets tend to move in repetitive waves. Even though some studies suggest patterns like the Piercing Line have a success rate of over 60%, this does not guarantee you will make a profit. However, we will show an example from the futures market that, while not perfectly matching the Piercing Line criteria, effectively illustrates the core concept behind the pattern. Futures, futures options, and forex trading services provided by Charles Schwab Futures & Forex LLC. Just choose the course level that you’re most interested in and get started on the right path now.
The Bullish Harami Pattern: Definition and Trading Example
We don’t care what your motivation is to get training in the stock market. If it’s money and wealth for material things, money to travel and build memories, or paying for your child’s education, it’s all good. We know that you’ll walk away from a stronger, more confident, and street-wise trader. The Bullish Bears trade alerts include both day trade and swing trade alert signals. These are stocks that we post daily in our Discord for our community members. Sometimes price patterns work well only between certain hours and sessions.
This might be due to a test of the volume level (4) from August 2. There is a bulge around the level on the profile (3) which covers trades from August 5-6. Strike, founded in 2023 is a Indian stock market analytical tool. Strike offers free trial along with subscription to help traders, inverstors make better decisions in the stock market.
Piercing line candlestick patterns have disadvantages despite their popular usage. This is because the Stochastic Oscillator is better at spotting momentum and trend continuation, whereas the Piercing Line pattern is more of a trend reversal signal. We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. We will help to challenge your ideas, skills, and perceptions of the stock market.
- It is almost impossible to find a textbook example on liquid intraday markets.
- If you’re using the bullish piercing line on intraday data you might want to include the time of day in your analysis.
- This raises doubts about the pattern’s effectiveness on intraday charts for futures and cryptocurrencies, where gaps are rare.
- Much like many other trend reversal patterns, technical traders use the piercing pattern to spot new price trends and find buying opportunities.
This article will show you how footprint charts can increase your confidence in trading bullish reversals at market lows fxcm canada review with the Piercing Line pattern. It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career. In this article, we’ve had a look at the bullish piercing line pattern and covered its meaning. We’ve also covered some strategy examples that we hope will spark ideas for your own trading.
Bullish Piercing Line: Candlestick Pattern
A piercing candlestick is a pattern used to spot possible price changes in the stock markets. A piercing candlestick consists of two candles, where the first candle is a long red/bearish candle, followed by a long green/bullish candle that opens below the previous day’s low. The green candle then closes above the midpoint of the previous day’s red candle, piercing it. In essence, traders use this classical chart pattern to identify the change in the trend and find entry and exit levels.
How to Identify a Bullish Piercing Line Pattern
The Piercing Line pattern shows that the bulls are beginning to gain control and the bears are beginning to lose ground. The gap down between the first candlestick’s low and the second candlestick’s open creates a buying opportunity for traders who believe that the trend is reversing. The Piercing Line pattern can be used by traders as a signal to start long positions or close out short positions. Stop-loss orders must be placed to control risk in the event that the pattern does not result in the anticipated reversal. The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.
Many of our strategies make use of some sort of volatility filter, and in the part about trading strategies, we’ll show you one of the volatility indicators that we’ve had the most success with. Generally, other technical indicators are used to confirm a buy signal given by the Piercing Pattern (ie, downward trendline break). The rejection of the gap down by the bulls typically can be viewed as a bullish sign. The fact that bulls were able to press further up into the losses of the previous day adds even more bullish sentiment.
The majority of traders use a visual method to choose whether to buy or sell the asset. A piercing pattern is a two-day candlestick price pattern that includes a trading range of average or greater size on the first day, with the opening near the high and the closing near the low. A piercing pattern indicates a potential short-term change from an upward trend to a downward trend.
How to Trade The Piercing Line Pattern (Trading Strategies)
In a bullish reversal, traders generally have two popular options. They may also choose to buy an in-the-money call option with a strike price below the current market price. A breakaway gap is a pattern that occurs in the first phase of a reversal.
A bullish piercing line is a two-candlestick pattern that appears after a downtrend. A piercing pattern is a two-day, candlestick price pattern that marks a potential short-term reversal from a downward trend to an upward trend. The pattern includes the first day opening near the high and closing near the low with an average or larger-sized trading range.
As you can see in the GBP/USD daily chart, the piercing line two candlestick formation occurs at the bottom of a mini downtrend. The second bullish opens below the first bearish candle creating a minor ‘gap’, and the closing price is greater than the 50% level of the first candlestick. A bullish piercing pattern consists of a downward price trend, followed by one day of sharp selling followed by a gap down that ends with a day of strong buying. This indicates that prices have dropped to a level where traders are enthusiastically buying the asset, suggesting that it might reverse the downtrend. The Piercing Pattern is a bullish candlestick pattern that appears after a period of selling pressure.
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Using trend reversal indicators is undoubtedly an excellent method to confirm a reversal, but if you want to use another popular tool, Fibonacci retracement levels are the answer. Thus, the cluster chart and market profile tool offer a clearer view of the shift from bearish to bullish sentiment behind the pattern. A key feature of the Piercing Line pattern is that the second candle must form a bearish gap relative to the previous one, which is typical on daily stock charts.
Let us look at an interactive brokers forex review example of how to employ a piercing line trading strategy. They watch for a tiny bearish candlestick to appear once a downturn has been established. Then they search for a bullish candlestick that opens below the previous bearish candlestick’s low but closes above its midpoint. Traders that recognise this pattern open a long position at the bullish candlestick’s close and place a stop loss below the low of the preceding bearish candlestick. Traders finally take profits at a predetermined level, such as a resistance level or a Fibonacci retracement level.
The type of securities and investment strategies mentioned may not be suitable for everyone. Clients must consider all relevant risk factors, including their own personal financial situation, before trading. Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors. A piercing pattern consists of two candlesticks that form near support levels where the second candle pierces into half or part of the first candle.
