Page 17 of the handbook, two candles
Piercing Line
- Signal
- Bullish reversal
- Candles
- 2
- Best found
- In a downtrend
What has to be true
- Day 1 is red, in a downtrend
- Day 2 gaps down and opens at a new low
- Day 2 closes above the midpoint of day 1's body
The piercing line is a bullish two-day reversal pattern. The first day, in a downtrend, is a red day. The next day gaps down and opens at a new low.
The gap down is met with buying pressure, then closes above the midpoint of the body of the first day.
This pattern is significant because the previous candle's midpoint is seen as a point of control. The previous candle is a red day, followed by a gap down. If sellers are able to maintain price under the midpoint, then you can say that sellers are still in control.
However, what we see instead with a piercing line is that after the gap down on the second day, buyers are able to reclaim the midpoint, showing that they potentially are reclaiming control of the trend.
The fight over the 50% control point
Let's take a look at another example, starting with the daily timeframe and then zooming into an intraday timeframe to see how price interacts with the midpoint. This way we can get a better visual of how buyers and sellers literally fight over the 50% control point.