BULLISH PIERCING LINE
Definition
This pattern signifies a bottom reversal with two candlesticks. On the first day, a black candlestick appears during an ongoing downtrend. The second day opens at a new low with a gap down and then closes more than halfway into the prior black body, resulting in a strong white candlestick. This formation indicates a potential shift in market sentiment and a reversal of the downtrend.
Recognition Criteria
1. The market is currently defined by a dominant downward trend.
2. On the first day, a black candlestick is observed.
3. A white candlestick opens on the second day with a gap down and closes more than halfway into the body of the first day.
4. The second day fails to close above the body of the first day.
Pattern Requirements and Flexibility
The first day of the Bullish Piercing Line pattern features a normal or long black candlestick. On the second day, the market should open well below the previous day’s close and close more than halfway into the prior black candlestick’s body. However, the second day’s close must remain within the body of the first day’s candlestick.
Trader’s Behavior
The market is in a downtrend, with the first black candlestick reaffirming this sentiment. The next day opens lower with a gap, indicating continued bearishness. Despite the bearish start, bulls take control, driving the market upward toward the close. Prices increase significantly, closing well above the previous day’s close. As a result, bears start losing confidence and reconsider their short positions. Potential buyers begin to speculate that new lows may not hold, considering it might be an opportune time to take long positions.
Buy/Stop-Loss Levels
The confirmation level is set at the last closing price. For confirmation, prices need to surpass this level.
The stop-loss level is set at the last low. After a BUY signal, the stop-loss is triggered if prices decline instead of rising and either close below the stop-loss level or record two consecutive daily lows below it, without any bearish pattern being detected.