Dark Cloud Piercing Line - Reversal chart Pattern

The Dark Cloud Piercing Line - Reversal chart Pattern tool identifies and visualizes two prominent Japanese candlestick reversal patterns to help traders anticipate potential trend shifts.

Usage

The indicator identifies four specific signal types based on the Dark Cloud and Piercing Line formations. These are visualized using shapes above or below the bars:

• Strong Piercing Line (Green Circle): A bullish reversal signal occurring after a downtrend where the second candle opens below the previous low and closes above the halfway point of the first candle's body.
• Weak Piercing Line (Blue Triangle): A bullish reversal signal where the pattern criteria are met, but the second candle's penetration into the first candle's body is less significant.
• Strong Dark Cloud (Red Circle): A bearish reversal signal occurring after an uptrend where the second candle opens above the previous high and closes below the halfway point of the first candle's body.
• Weak Dark Cloud (Red Triangle): A bearish reversal signal where the bearish penetration is less aggressive or the opening gap is smaller.

Traders can use these patterns as alerts for potential trend exhaustion. Strengthening factors include longer candle bodies, the absence of shadows in the direction of the reversal, and the proximity of the pattern to known support or resistance levels.

Details

The script evaluates two-candle sequences to determine pattern validity.

Dark Cloud Criteria:

1. The first candle is bullish, followed by a bearish second candle.
2. The second candle should open above the close (or high for strong signals) of the first candle.
3. The second candle must close below the halfway point of the first candle's body but not completely engulf it.

Piercing Line Criteria:

1. The first candle is bearish, followed by a bullish second candle.
2. The second candle should open below the close (or low for strong signals) of the first candle.
3. The second candle must close above the halfway point of the first candle's body but not completely engulf it.

The script also applies a body-to-range filter, ensuring that detected patterns consist of candles with meaningful "full bodies" (greater than 60% of the total candle range) to avoid noise from small or indecisive price action.

Settings

• Show Dark Cloud: Toggles the detection and visibility of bearish Dark Cloud patterns.
• Show Piercing Line: Toggles the detection and visibility of bullish Piercing Line patterns.

FAQ

How do I interpret the difference between a circle and a triangle?

A circle indicates a "Strong" version of the pattern, typically involving an opening gap that exceeds the previous candle's high/low. A triangle indicates a "Weak" version where the opening gap or the depth of the penetration is less significant.

Can these patterns be used in any timeframe?

Yes, the logic is based on price action and candlestick relationships, making it applicable to various timeframes from intraday to daily charts.

How do I get access to Dark Cloud Piercing Line - Reversal chart Pattern?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.