The Dark Cloud Cover candlestick pattern

See the picture below:

This is a reversal candlestick pattern consisting of 2 candles, where the close of the second candle must be in the lower half of the first candle.

This candlestick pattern is a variation of the Pinbar candle, as shown below:

Note: Do not trade this pattern at the mid-range price ranges, but checking the background of this pattern will be the decisive factor for the success of the model.

3 ways to enter commands with the model The dark cloud cover

Option 1: Enter an order right after the second candle closes

This way is for the more risk-averse traders, as they don't wait for further confirmation but will enter the trade as well. As shown below:

Option 2: Enter an order when the price breaks the lowest price of the first candle

In this way, we use a sell stop order, with the confirmation of the seller's participation in the market, which will be more certain than option 1, but the entry point does not have the advantage like method 1:

Option 3: Enter an order when the price closes below the lowest price of the first candle

This is the most conservative approach, the entry point in this way is not as advantageous as the previous two, but it does add further confirmation of the downside price:

Which way should you use it?

The figure below compares three methods of entering an order:

In method 1, you will have a good entry point, tighter stop loss, and the best RR rate. But you will be more prone to stop loss than the other 2 methods.

In way 2, the RR ratio is not equal to 1 but will be higher than method 3, the stop loss is harder to hit. This can be said as a balance between ways 1 and 3.

In method 3, there is no stop loss as often as the other 2 methods, but the RR ratio is not good, and the entry point is not advantageous, but with the confirmation of the market, it will be more certain.

It depends on how you trade and choose the right order to enter. However, if you are a cautious trader then it is better to choose option 3 for further confirmation.

Or you can trade as follows, wait for the price to close below the low of the first candle, then you can place a sell limit at the closing price of candle 1 as shown below:

However, this can cause you to miss out on trading opportunities.

How to trade with the Dark Cloud Cover pattern

There is 2 setup that you can use:
  • A rebound in a downtrend
  • 2 vertex pattern
A rebound in a downtrend

As shown below, we will focus on trading at the end of the rally, when the market makes a lower high, but not all peaks we trade. Which should focus on strong resistance or dynamic resistance above moving averages. As shown below:

You can use the moving average that you are familiar with, in this article, the author suggests to use 2 EMA 20 and EMA 50. The picture below is the pattern The Dark Cloud Cover appears at the average EMA 20 during a downtrend rebound:

In the picture above you can see, the market has a bearish structure, and the 20 EMA is below the 50 EMA, the downtrend has strong momentum.

The example below demonstrates this:

2 vertex pattern

The 2-high pattern is a bearish pattern in an uptrend, which is above the 20 EMA and 50 EMA:

Or a similar formation like the image below:

The Dark Cloud Cover pattern should appear at the second top as shown below:

The example below describes this trading setup:

The Dark Cloud Cover pattern appears at the top 2 of the 2-peak pattern and is above the 2 EMA, so we can sell down with this pattern.

Or as shown above, the two-peak pattern appears during a downtrend, retest with the EMA in this recovery, and create a dark cloud cover pattern at the top 2:

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