Piercing Pattern Candlestick: A Complete Guide for Traders

When markets trend down, traders look for signs that a trend reversal signal could be near. The Piercing Pattern candlestick is one such Japanese candlestick pattern, often catching the attention of traders who want to anticipate bullish candlestick pattern moves early. But spotting the candle pattern is just the first step.

Understanding its market structure, strengths, and limitations is what separates informed trading decisions from those who blindly follow candlestick charts without real confirmation signals.

This guide breaks down the Piercing Pattern candlestick, how to identify it, what it reveals about market sentiment, and how traders can use it effectively.

The Piercing Pattern is a bullish reversal candlestick pattern that appears after a downward price trend. It consists of two consecutive candlesticks acting as technical analysis indicators for:

1. The black candle, or bearish candlestick pattern, continues the existing bearish market sentiment.
2. A white candlestick (bullish candle) that opens lower but closes at least halfway into the real body of the previous candlestick.

This second candle suggests that buyers are stepping in with decisive buying pressure, technically indicating a potential shift in momentum back in their favor.

• Appears after a prolonged downtrend.
• The first candle shows strong selling pressure and bearish dominance.
• The second candle opens below the previous support level but closes above the midpoint of the first candle.
• The longer the second candle and the deeper it moves into the actual body of the first, the stronger the reversal signal.

Traders often see this pattern as a bullish sign of upward momentum, but confirmation from technical analysis indicators and volume analysis is necessary before making trading decisions.

The Piercing Pattern candlestick pattern is illustrated below.

• Forms after a bearish trend in the stock market.
• The first candle is strongly bearish, signaling bearish momentum.
• The second candle opens below the previous support level and closes above the midpoint of the first candle.
• The pattern suggests a bullish trend reversal.
• Confirmation signals are needed from subsequent candlesticks or volume spike.

The Piercing Line candlestick pattern reflects a battle between market participants—sellers and buyers. The first candle continues the bearish sentiment, with sellers dominating. The second candle opens even lower, indicating excess supply. But then, buyers step in aggressively, pushing prices up and closing the session above the midpoint of the first candle.

This shift signals that sellers are losing control, and buyers are willing to push price movement higher. If the next candle follows through with another bullish movement, traders take it as a strong signal that the bullish trend reversal is confirmed.

The Piercing Pattern is most effective in a bear market or downward trend, as it suggests the start of an upward trend reversal. In range-bound markets, it may indicate short-term bullish price action, but it might not lead to a complete trend reversal signal.

In high volatility conditions, the pattern may produce false positives, as trading activity can create misleading setups. In low volatility environments, the pattern may carry greater weight, as price action is smoother and controlled.

• Stop-loss placement: Below the low of the Piercing Pattern.
• Entry strategy: Wait for bullish confirmation signals before entering long.
• Profit target: Use nearest resistance level or a Fibonacci retracement level.

• No follow-through buying: If the next candle is bearish, the bullish reversal signs weaken.
• Break below the low of the pattern: A new low invalidates the setup.
• Strong downtrend continuation: If broader market conditions remain bearish, the pattern may fail.

To trade the Piercing Pattern in a systematic approach:

1. Identify a downward price trend before the pattern formation.
2. Detect a valid Piercing Pattern with a bearish-bullish trend formation.
3. Require confirmation from volume before entering long.
4. Set stop-loss below the low of the Piercing Pattern.
5. Backtest before using real capital.

Trading indicators like Bollinger Bands and Volume Analysis can add extra confirmation.

Below is a simple AFL script to detect the Piercing Pattern in Amibroker.

// Conditions for the Piercing Pattern
bearishCandle = Ref(C,-1) < Ref(O,-1); // Previous candle is bearish
bullishCandle = Close > Open; // Current candle is bullish
gapDown = Open < Ref(L,-1); // Current candle opens below previous low
pierceMid = Close > (Ref(O,-1) + Ref(C,-1)) / 2; // Closes above the midpoint of the previous candle

// Piercing Pattern Signal
PiercingPattern = bearishCandle AND bullishCandle AND gapDown AND pierceMid;

This script finds Piercing Patterns in downtrends and marks them with a blue star.

The Piercing Pattern candlestick is a powerful tool for identifying bullish reversal trends, but traders must use confirmation from volume and technical analysis indicators to avoid false positives.

If you want to incorporate this trading tool into your strategy, test it in different markets before using it in live trading.

Links to articles about other Candlestick Patterns

1. Doji
2. Hammer
3. Inverted Hammer
4. Bullish Engulfing
5. Bearish Engulfing
6. Morning Star
7. Evening Star
8. Shooting Star
9. Hanging Man
10. Piercing Pattern
11. Dark Cloud Cover
12. Three White Soldiers
13. Three Black Crows
14. Dragonfly Doji
15. Gravestone Doji
16. Spinning Top
17. Marubozu
18. Tweezer Top
19. Tweezer Bottom
20. Bullish Harami 
21. Bearish Harami
22. Rising Three Methods
23. Falling Three Methods
24. Bullish Abandoned Baby 
25. Bearish Abandoned Baby 
26. Bullish Kicker 
27. Bearish Kicker
28. Three Inside Up
29. Three Inside Down
30. Upside Gap Two Crows
31. Mat Hold
32. Upside Tasuki Gap
33. Downside Tasuki Gap