Leavitt Brothers: Education - Candle Stick Patterns

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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
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	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

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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