The Dark Cloud signal is a signalthattells an obvious reversal of a trend.Itis named because it looks like a dark cloud over a nice bright sunny uptrend.
Whereas the dark cloud cover warns that an uptrend might be coming to an end and is thus a signal to take profits on long trades, a piercing candle intimates that a downtrend may be about to reverse and shorts should be covered.
This two-candle bearish reversal pattern is the bearish converse of the piercing line, occurring at the top of a bullish trend. The first bullish candle is followed by a bearish candle that opens at a new high and then closes at least halfway down the body of the bar preceding it. The strength of the reversal signal is proportionate to the length of the second candle. This pattern is clearly conceptually and mathematically similar to the Piercing Line and Tweezer patterns.