Definition - With two candlesticks in total, this pattern is considered to be ‘top reversal’. On the first day, a white candlestick will form during an uptrend. After opening at a new high, the second day will see a gap up before then closing over halfway into the white body seen previously. Therefore, the formation of a strong black candlestick is observed.
- On the first day, a white candlestick appears in a market experiencing a prevailing uptrend.
- On the next day, a black candlestick is seen with a gap up. At close, the price will be over halfway into the first day’s body.
- At the end of the second day, the price cannot close below the first day’s body.
Patterns and Flexibility
In the Bullish Dark Cloud Cover, the white candlestick must be normal or long. At the open of day two, prices should be higher than the close of day one. Whilst staying inside the body of the first day, the second day will close over halfway into the white candlestick that formed the day before.
Behaviour of Trader
When the white body forms at the beginning, this suggests that the uptrend in the market will continue. Even after the open of the second day, opening higher with a gap, the market seems to be bullish. However, the bears soon take control and the prices fall dramatically before closing well below the previous close. Suddenly, the bulls lose strength and confidence and they start to reconsider their long positions. For short sellers, they consider taking short positions because the new highs aren't likely to hold.
Sell/Stop Loss Levels
For there to be confirmation, the prices will have to cross below the last close. For stop loss, the level will be set at the last high. If the prices rise following a bearish signal, the stop loss will be triggered, if there is no bullish pattern, when there are two days of highs above the stop loss level.