What is the Piercing Candlestick Pattern?

The piercing candlestick pattern is a bullish reversal pattern that appears during a downtrend, signalling that the selling pressure may be weak. This pattern is formed when a bearish candle is followed by a bullish candle, which opens below the previous low and closes above the midpoint of the previous candle’s body. This pattern shows a strong shift in the market sentiment, where buyers may step aggressively after sustained selling. By understanding this pattern formation, traders can improve the buying momentum, plan entry points easily, and manage intraday or short-term trades with clearer directional cues. This article explains what is piercing candlestick pattern, how to identify it, how it works, and more.  

Identifying the Piercing Candlestick Pattern with Examples 

To identify a piercing candlestick pattern correctly, traders can follow these clear steps: 

1. Look for an Existing Downtrend The pattern is valid only when the market is already moving downward with consistent selling pressure. 
    Example: A stock has been falling for five consecutive sessions, making lower highs and lower lows. 
2.  Spot the First Candle – A Strong Bearish Candle The first candle must be bearish with a long real body, showing dominant selling. 
   Example: The stock opens at ₹210 and closes sharply lower at ₹190, forming a large red candle. 
3. Check the Opening of the Second Candle The bullish candle needs to open below the previous candle’s low. This indicates  continued bearish sentiment at the start. 
   Example: The previous low is ₹190, and the next candle opens at ₹188. 
4. Confirm a Strong Bullish Close The bullish candle must close above the midpoint of the previous candle’s body. This shows buyers have taken control. 
    Example: If the previous candle’s body ranges from ₹210 to ₹190, its midpoint is ₹200. The new bullish candle closing at ₹202 confirms the pattern. 
5. Ensure Noticeable Volume Pick-Up (Optional but Helpful) A rise in trading volume on the bullish candle strengthens the reversal signal. 
   Example: Volume increases by 30 - 40% on the bullish candle compared to previous sessions. 
6. Validate with Support Levels The pattern becomes more reliable if it forms near a support zone, trendline, or Fibonacci level. 
    Example: The piercing pattern appears exactly at a long-term support near ₹185, making the reversal more meaningful. After understanding what is piercing pattern, let’s understand how it works.  

How does the Piercing Pattern work? 

The piercing pattern candlestick works during an economic downturn, when there is a sense of selling pressure and falling prices. At the start of the pattern, the downtrend is still going and the candle shows a lengthy actual body which signifies selling activities.  

At the start of the trading session, we can see that the sellers are still in charge when the second candlestick opens below the previous candle's low. Buyers begin to enter the market as the session goes on causing the prices to rise.   

It's important to note that the second candle closes above the middle or higher than the actual body of the first candle. The closing price reflects bullish momentum exceeding adverse emotion, which may indicate a shift in market mood from bearish to bullish. 

At the end of the trading session we can see the Piercing Pattern indicates that the buyers have got more active and are dominating the sellers. In this pattern, traders ‌use the stop-loss orders below the first candlestick's low to control risk. This reduces the losses if the reversal is not realised. 

Advantages and Disadvantages of Piercing Candlestick Pattern 

The table below shows the advantages and disadvantages of piercing candlestick pattern 

Strategies to Trade the Piercing Candlestick Pattern 

Here are some strategies to trade the piercing candlestick pattern: 

Strategy 1: Pullbacks on Charts 

Look for a piercing pattern when the uptrend is reversing. It often signals the end of the pullback and a potential to move upward when the pattern appears after a decline. 

Strategy 2: Trading with Support Levels 

Watch for a price drop to reach these levels by looking for support levels on the charts. If a piercing pattern appears close to a support level, then investors can go long when the pattern's peak exceeds its peak. 

Strategy 3: RSI Divergences 

Investors can look for bullish RSI divergences in a downtrend, where the price makes lower lows but the RSI makes higher lows. When this strategy comes along with piercing pattern candlestick, it forms a price lower low and considers entering a long position. 

Strategy 4: Fibonacci Retracement 

Investors can use the Fibonacci retracement levels to find the reversal zones. Investors can also consider going long when the price reaches a Fibonacci level and forms a piercing pattern. 

Strategy 5: Use of Moving Averages 

During an upswing, look for price pullbacks to the moving average. When the price breaks above the pattern's peak, then a trader might want to consider going long if a piercing pattern forms close to the moving average. 

Conclusion

The piercing line candlestick pattern provides valuable insight into the continuation of bullish momentum.  However, using only this pattern may not result in consistently profitable trades, although it's useful to alert traders about the potential trend reversals. Its effectiveness is enhanced by including the Piercing Pattern in a comprehensive trading strategy along with other confirmation indicators. Traders can gain a strategic advantage by analysing volume, price action, and momentum in conjunction with the Piercing Pattern and identifying potential market turns ahead of the general market sentiment. Finally, one needs to choose a reliable online trading app that can enhance their decision-making processes and risk management practices.