Today we will be looking at the piercing pattern. The piercing pattern is made up of two candlesticks, the first one black, the second one white, both with fairly large bodies and small tails(shadows). The white candlestick must open below the the black candlestick and close at least half way up the body of the black candlestick. The piercing pattern is the opposite of a dark cloud cover and similar to a bullish engulfing pattern.
Application Just like a bullish engulfing pattern, the piercing pattern is a reversal of a downtrend, therefore, it is considered bullish. The theory behind it is the bears have been in control of the stock (during the downtrend) and then the stock opens below the close of the first candle and the bulls take over.
The above is the daily candlestick chart of Macquarie Bank Ltd (MBL). This is a classic piercing pattern example, the downtrend began on April 1st 2006 and the piercing pattern (2nd candlestick) occurred on the 14th of June 2006. It is important to note that this pattern requires a confirmation candlestick, this occurred two days latter on the 16th June.