Understanding candlestick patterns: Dark Cloud Cover

The dark cloud cover pattern occurs in an uptrend and is comprised of two candlesticks. The first candlestick in the pattern is a long green candle, that is accompanied with high volume. The next candlestick makes a higher high, but then sells off to close below the midpoint of the first candlestick, but not below the open of that candle. In Japan this snap back sell off is called a kabuse, which means to get covered or to hang over.

The dark cloud cover is one of the first signs that a potential bearish reversal is in play. Traders should wait for the low of the first candlestick in the pattern to be exceeded prior to taking a short position. Stops can conversely be placed above the high of the first candlestick of the formation. The more the second candle closes below the mid-point of the first candlestick, the greater the odds of a successful dark cloud cover line reversal pattern.