In this guide to understanding the Piercing Line Pattern (also called simply the Piercing Pattern), we’ll show you what this chart looks like, explain its components, and teach you how to interpret it.
What Is the Piercing Line Pattern?
The Piercing Pattern is viewed as a bullish candlestick reversal pattern, similar to the Bullish Engulfing Pattern.
What Does the Piercing Pattern Look Like?
There are two components of a Piercing Pattern formation:
A Piercing Pattern occurs when a bullish candle on Day 2 closes above the middle of Day 1’s bearish candle, as shown in Chart 1 below:
Additionally, the price gaps down on Day 2 only for the gap to be filled and closes significantly into the losses made previously in Day 1’s bearish candlestick.
Interpreting the Piercing Line Pattern
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.
Bulls were successful in holding prices higher, absorbing excess supply and increasing the level of demand.
Example: Piercing Pattern Candlestick Chart
Chart 2 below of Intel (INTC) stock illustrates an example of the Piercing Pattern:
Potential Buy Signal
Generally, other technical indicators are used to confirm a buy signal given by the Piercing Pattern (ie, downward trendline break).
Since the Piercing Pattern means that bulls were unable to completely reverse the losses of Day 1, more bullish movement might be expected before an outright potential buy signal is given.
Also, more volume than usual on the bullish advance on Day 2 might be a stronger indicator that bulls have taken charge and that the prior downtrend is likely ending.
Additional Bullish Indicators
Bullish Engulfing Pattern is typically viewed as being more bullish than the Piercing Pattern because it completely reverses the losses of Day 1 and adds new gains.
For further study, the bearish equivalent of the Piercing Pattern is the Dark Cloud Cover.
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Below we answer some common questions about Linear Regression Line indicators.
What is a bull market?
A bull market is one in which prices are rising, encouraging buying. “Bullish” can be used to describe an entire time period for a market or simply the situation in which the price of an asset or derivative instrument is temporarily on an uptrend.
A bear market is in contrast to a bull market, in which prices are falling, encouraging selling.
Learn more about technical analysis indicators, concepts, and strategies including:
- Time Series Forecast
- Typical Price Moving Average
- Standard Error Bands
- Market Thrust
- Adaptive Market Averages
- Average Directional Movement.
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