Bullish Piercing Line

The Bullish Piercing Line is a two-candlestick bullish reversal pattern that occurs after a downtrend.

It is significant over all time units. It is less powerful than a Bullish Engulfing. Its bearish equivalent is the Dark Cloud Cover.

Its characteristics are as follows:

• The Bullish Piercing Line must appear after a downtrend.

• The 1st candlestick must be red and preferably powerful.

• The body of the 2nd candlestick must be green and open below the lows of the day before.

• The 2nd candlestick must close at least above the half of the 1st candlestick.

Such a pattern occurs after a downtrend, the day after losses happened, when prices open gap down below the lowest point of the day before. The bearish forces dry up and prices rise again before finally closing above the half of the body of the previous Japanese candlestick. Most of the losses of the day before are then erased. Since volumes are often strong in a gap opening, all the uncovered sellers who entered at the opening end up losing and most of them cut their positions, what fosters the new uptrend.

The upper shadow of the 2nd candlestick should ideally be short as it shows that the bulls are now in charge and that the bears did not manage to lower the prices. In this example, the next day opens gap up, which confirms the strength of the new uptrend.

The more the body of the 2nd candlestick fits into that of the 1st, the more significant the pattern is. If they happen to cover each other, this forms a Bullish Engulfing again.

Strong volumes can also confirm the pattern.

Regardless of the quality of the Bullish Piercing Line, it is wiser to wait for the pattern to be confirmed by the next candlestick that should open higher if one wishes to buy on D+1 (D being the day of the 2nd candlestick from the engulfing pattern) or be green if one prefers to wait for the nest close and buy at the opening on D+2.

The invalidation threshold can be placed either below the lowest point of the pattern or according to the Thirds Rule, depending on the investment intentions of the stakeholder.

Moreover, it is very interesting to observe both the reversal patterns and the support and resistance lines. A Bullish Piercing Line can thus appear around a support, go through it momentarily as this happens in the example at 2400 pts and then rise above it again, thus confirming the chances of success of the reversal.