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Abandoned Baby
Advance Block
Belt Hold
Breakaway
Dark Cloud Cover
Deliberation
Doji Star
Dragonfly Doji
Downside Gap Three Methods
Downside Tasuki Gap
Engulfing
Evening Doji Star
Evening Star
Falling Three Methods
Gravestone Doji
Hanging Man
Harami
Harami Cross
Identical Three Crows
In Neck
Kicking
Meeting Lines
On Neck
Separating Lines
Shooting Star
Side By Side White Lines
Three Black Crows
Three Inside Down
Three Line Strike
Three Outside Down
Thrusting
Tri Star
Two Crows
Upside Gap Two Crows

Dark Cloud Cover
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Pattern: reversal
Reliability: high

Identification
A long white day is followed by a black day which gaps above the high of the white candle and then closes below the midpoint of the first day's body.

The Psychology
In an uptrend or within a bounce of a downtrend, the stock gaps up and immediately encounters sellers who push the stock back down. This simply signifies the possibility of a reversal that is more reliable if the gap up occurs at resistance and the black day is accompanied by a surge in volume.

The bearish Dark Cloud Cover is similar to the bearish Engulfing.



Dark Cloud formations are thought to be of the reversal variety but we also think they are playable on bounces within steady downtrends. CL was falling steadily and bounced on less than impressive volume. The Dark Cloud Cover formation signaled the end of the bounce and a continuation of the downtrend.



Here is an example of a Dark Cloud Cover candle formation occurring at resistance. In a steady uptrend, playing this pattern for a reversal is risky, but when the pattern forms at resistance, the odds favor a successful result.



WEDC formed a bearish Dark Cloud Cover candle right at a previous high and began a tradable leg down. When this candle forms at resistance, your risk declines on a the short side.



After rallying nicely FRED pulled back and then formed a bearish Dark Cloud Cover at the top of the subsequent bounce. But realistically, given the strenght of the stock, you could not expect the stock to trade below the previous low. Active traders could sell a long when the candle forms and then look to rebuy when support holds.


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