The Covered Black Cloud pattern is bullish to bearish reversal candlestick pattern that is very common in the market, especially in the US stock market. The Covered Black Cloud pattern belongs to a group of candlestick patterns with high probability, and with the not too complicated trading method, makes it one of the reversal candlestick patterns that deserve to be traded.

The pattern of Black Clouds - Pattern Identification

The Covered Black Cloud pattern is completed when we see a bullish candlestick, the next candle opens higher than the previous one (creating a new high) but reverses and closes around the middle of the previous bar. We see the price broke the previous high and made a new high, but by the end of the day, the price reversed and closed lower.


The lower down bar at the back has a higher high but closed down like the image of dark clouds covering the rising candlestick ahead, so it is called the Covered Black Cloud pattern. Whenever you see a bearish candlestick followed by a bullish candlestick and have a higher high than a bullish candle, it is a Covered Black Cloud pattern.


Covered Black Clouds - Pattern Meaning

The dark cloud cover pattern clearly shows a transition from bullish to bearish momentum, from the bullish candlestick to bullish candlestick (bullish expectation) but eventually fell and closed. around the low level (selling force suddenly overwhelmed). We see the reversal of the upside-down momentum very EXCELLENT and fast, making it a highly probable downside pattern.


The lower down bar should close at least around 1/2 the length of the upside bar. Many traders will wait for a transition signal - follow-through, which is the next downside candlestick, to confirm that the price has completely reversed to decrease, and then enter the order. Both candlesticks in the model should be bullish/bearish candles with a large body, a small shadow, clearly showing a bull run, then a decline. Candles with long shadows and small bodies should be discarded, as they show another kind of sentiment in the market, which no longer has the reversal nature of the Covered Black Cloud pattern.

Small real-body candlesticks have little meaning, as they contain insufficient momentum to confirm a reversal. We need to satisfy the condition that the big body candle + the (very) short shadow.


Dark Cloud - How to enter an order

There are 2 ways to enter orders with the Covered Black Cloud pattern:

Option 1: Entry SELL STOP is at the bottom of the previous bullish bar, stop loss is above the top of the decreasing bar. This is the most reasonable way because we need a breakout for the command to be activated.

Option 2: Entry SELL MARKET has 1 bearish candlestick followed by the Closing of Dark Cloud pattern. This way is more secure.

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