TA School

Piercing Pattern

Learn to identify this two-candle bullish reversal pattern where buyers pierce deep into the territory of sellers.

beginner level8 min read

Interactive Model

Interactive Visual Walkthrough

Piercing Pattern Bottom

Step 1 of 4
Bearish Trend

Price drifts down under persistent selling pressure. Day 1 and Day 2 close lower, maintaining the short-term downtrend.

Why it matters: A bullish reversal needs a prior downward momentum to reverse.

What is a Piercing Pattern?

The Piercing Pattern is a two-candle bullish reversal formation that occurs at the bottom of a downtrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →. It is considered a close relative of the Bullish EngulfingBullish EngulfingA two-candle reversal pattern where a small bearish candle is followed by a larger bullish candle whose body completely overlaps or "engulfs" the prev...Read full glossary entry → pattern, representing a scenario where buyers manage to recover most of the previous day's losses, piercing deep into the bears' territory.

Pattern Structure

To classify a formation as a Piercing Pattern, the following structure is required:

  1. Prior TrendTrendThe general direction in which a security or market is moving over time.Read full glossary entry →: Must occur after an established downtrendDowntrendA market direction characterized by a sequence of lower highs and lower lows.Read full glossary entry →.
  2. Day 1 (Bearish Candle): A relatively large red (or black) candle that continues the downward trendTrendThe general direction in which a security or market is moving over time.Read full glossary entry →.
  3. Day 2 (Bullish Candle): A green (or white) candle that:
    • Opens below the low of the Day 1 candle (a gapGapAn area on a chart where no trading activity took place, visible as an empty space between two consecutive candles.Read full glossary entry → down).
    • Closes at or above the 50% midpoint of the Day 1 candle's real body.
    • Does not close above the open of the Day 1 candle (otherwise, it becomes a Bullish EngulfingBullish EngulfingA two-candle reversal pattern where a small bearish candle is followed by a larger bullish candle whose body completely overlaps or "engulfs" the prev...Read full glossary entry → pattern).

Psychology Behind the Pattern

The market psychology of a Piercing Pattern outlines a classic seller trap:

  • Bearish Domination: The first day is heavily bearish, reinforcing the sellers' confidence that the downtrend is strong and healthy.
  • The Trap Opens: The second day opens with a gapGapAn area on a chart where no trading activity took place, visible as an empty space between two consecutive candles.Read full glossary entry → down below the previous day's low. This represents panic selling and exhaustion.
  • The Counter-Attack: At these deeply oversold levels, buyers find value and step in. They buy up supply, forcing short sellers to buy back and cover their positions.
  • The Piercing Close: The price climbs throughout the session, closing deep within the previous day's bearish body. Sellers are now on the defensive, realizing their downside momentum has stalled.

Identification Rules

  • Identify the Midpoint: Draw a mental line at the 50% level of the first bearish body. The second day must close above this line.
  • Confirm the Gap: Ensure the second day opens lower than the previous session's low or close.
  • Look for VolumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry →: Above-average volumeVolumeThe total number of shares, contracts, or units of a security traded during a specified time period.Read full glossary entry → on the second bullish day adds significant weight to the reversal.

Trading Setup

  • Entry: Place a long position at the close of the second candle (once the piercing close is locked in) or on the next candle if it breaks above the high of the piercing pattern.
  • Stop-Loss: Place the stop-loss orderStop-Loss OrderAn order placed with a broker to sell an asset when it reaches a specific price, designed to limit a trader's loss on a position.Read full glossary entry → just below the low of the second (bullish) candle.
  • Target: Target the next local resistanceResistanceA price level where selling pressure is strong enough to prevent the price from rising further. It represents a "ceiling" on the chart.Read full glossary entry → level or a major moving average (e.g. 20 SMA or 50 EMA).

Common Mistakes

[!WARNING]

  • Ignoring the Midpoint: Trading a pattern where the second candle closes below the 50% mark of the first candle. This is called a "thrusting line" and is often a bearish continuation signal, not a reversal!
  • Trading in Sideways Ranges: Reversal patterns are meaningless without a prior trend to reverse. Avoid trading this pattern in choppy, sideways markets.

Key Takeaways

  • •Piercing Pattern is a two-candle bullish reversal pattern forming at the bottom of a downtrend.
  • •The first candle must be a large bearish (red) candle.
  • •The second candle must open below the low of the first candle (a gap down).
  • •The second candle must close at least 50% above the midpoint of the first candle's real body.
  • •Higher volume on the second day increases the reliability of the reversal.
Knowledge CheckQuestion 1 of 5

What is the defining closing requirement for the second candle of a Piercing Pattern?

Previous LessonHammer Pattern
Next LessonMorning Star Pattern