Dark Cloud Cover

Dark Cloud Cover

Dark Cloud Cover

Dark cloud cover is one of the most common patterns and it’s used by many traders all around the world. It is based on Japanese candlestick techniques. It is a bearish pattern, meaning that it can give you the signal to buy put options and in this article we will explain everything you need to know about it.

Dark Cloud Cover | Definition

Dark cloud cover is a pattern where a black candlestick follows a long white candlestick, which can be an indication of a bearish trend. Its closing price is always within the price range of the previous day, but at the same time it has to be below the mid-point between open and closing prices of the previous day. It’s not considered to be as strong a signal as, for example, Engulfing Patterns, but it’s still a reliable bearish indicator. It’s especially important when you’re dealing with higher time frames, but at the same time its significance is reduced when you’re trading with lower time frames. In the continuation of this article we’ll explain how to recognize a dark cloud cover, so keep reading!

Dark Cloud Cover | Formation

The first candlestick appears bullish and it has a long body. It also closes to the upside. The next candle gaps to an even higher level at its opening, but after that, the price falls back. The candle closes in the lower half of the body of the preceding up candle.

The bearish indication of the dark cloud cover is stronger if the candle that follows closes below the low of the up candle that immediately preceded it. The price may go downward without significant upward retracement.

Dark Cloud Cover | Interpretation

There are several situations that are significant when it comes to applying the dark cloud cover to your market analysis. Firstly, the bodies of both the preceding up candle and the dark cloud cover down candle are very long. The second rule is: the higher the opening gap up by the dark cloud cover candle, the reversal downward will be more marked. Thirdly, the pattern occurs near a major resistance level, especially if the gap up is over the resistance level, but the candle’s eventual close is below it. Finally, there is a high volume of trading during the formation of both candles.

You should keep in mind all these things when using this tool. Also, as mentioned earlier, it’s not the strongest signal, so it would be good to combine it with some other candlestick patterns, such as the Morning Star.

Dark Cloud Cover | Conclusion

Although it’s not the most powerful tool, it can help you a lot in your trading, since it can be very useful while trading long-term trades. In order to get more accurate predictions, it should be combined with other patterns. There are several things you should remember about the dark cloud cover, but once you learn how to recognize and interpret it, you will be a much better trader than you used to be.

CHECK OUT OUR LIST OF TRUSTED BROKERS HERE


FURTHER READING:

1. Cybernetic Analysis For Stocks & Futures (J. F. Ehlers, 2004)
2. Stocks For The Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies (J. J. Siegel, 1994)
3. One Good Trade: Inside The Highly Competitive World Of Proprietary Trading (M. Bellafiore, 2010)
4. Binary Options Trading Strategies (Alex Nekritin – 2012)
5. A Comprehensive Study on Normal Backwardations in Futures Markets (Lee, Jeong W-2013)

Author's overall rating:
Author: Ben Prescott
Updated:

RISK DISCLAIMER
BinaryOptionsTrading-Review.com has taken reasonable measures to ensure the accuracy of the information in the website, however, does not guarantee it. The data exhibited in this website is not necessarily always real-time or completely accurate; this includes market analysis, forecasts, signals, assets’ price quotes and charts. Readers should not treat any opinion expressed by the authors of BinaryOptionsTrading-Review.com as a specific inducement to make a particular trade or follow a particular strategy, but only as an expression of their current opinion. The risks involved in trading binary options are high and may not be suitable for all traders. BinaryOptionsTrading-Review.com doesn't retain responsibility for any losses readers might face as a result of using the information presented in this website. This website is owned by Next Media Corp.
In accordance with FTC guidelines, BinaryOptionsTrading-Review.com has financial relationships with some of the products and services mentioned on this website. BinaryOptionsTrading-Review.com may be compensated if consumers choose to click links in our content and ultimately sign up for mentioned products.