To The Moon

This is the fourth part of a series which will show how we can use candlestick to identify bullish signal.

You can refer to the previous parts here:

Part 1/11 - How to use [Hammer Candlestick Chart] to identify Bull market

Part 2/11 - How to use [Inverse Hammer Candlestick Chart] to identify Bull market

Part 3/11 - How to use [Bullish Engulfing Candlestick Chart] to identify Bull market

Do remember that we should never use candlestick chart alone when we trade, we also need to look out for other indicators which we are comfortable with.

In this part, I will be sharing Piercing line Pattern Bullish Signal.

Here is a recap on how to read a single candlestick

How to Read a Single Candlestick

• Each candlestick represents one day’s worth of price data about a stock through four pieces of information: the opening price, the closing price, the high price, and the low price.

• The color of the central rectangle (called the real body) tells investors whether the opening price or the closing price was higher.

• A black or filled candlestick means the closing price for the period was less than the opening price; hence, it is bearish and indicates selling pressure.

• Meanwhile, a white or hollow candlestick means that the closing price was greater than the opening price. This is bullish and shows buying pressure.

• The lines at both ends of a candlestick are called shadows, and they show the entire range of price action for the day, from low to high. The upper shadow shows the stock’s highest price for the day, and the lower shadow shows the lowest price for the day.

Piercing line Pattern Bullish Signal

The piercing line is also a two-stick pattern, made up of a long red candle, followed by a long green candle.

When a falling asset makes a long bearish candle that is then followed by a smaller bullish candle that closes above 50% of the preceding bearish candlestick, we can see a piercing line candlestick pattern formed.

There is usually a significant gap down between the first candlestick’s closing price, and the green candlestick’s opening. It indicates a strong buying pressure, as the price is pushed up to or above the mid-price of the previous day.

While 50% is the most common level, it is hard to estimate it. Therefore, most traders use a visual approach to determine whether to buy or sell the asset. The chart below shows how this pattern forms.

How do we identify the Piercing line Pattern

I personally will follow these 3 rules (or observations)

• Stock is in Downtrend (this is a mandatory)

• There will be a Bearish candle on the left. It will have a large body and small shadows

• First candle (Bearish candle) will be followed by a Bullish one (denote by Green candle). It close 50% above the previous close (small gap)

What could the Piercing line pattern tell us?

There is a number of things that a piercing line indicator could tell us.

Here are the 2 things I have gathered :

1. It tells us that the bearish trend is diminishing since the price closed above the Bearish candle

2. It tells us that a new bullish trend is about to start. But it could also tell us that there could be a bearish continuation when there is a false breakout pattern.

I would use $Palantir Technologies Inc.(PLTR)$ as an example to look at the Piercing line candlestick pattern and see if it is true.

Palantir (PLTR) - 27-28 Dec 2022

As you can see PLTR was in a downtrend before 27 Dec 22, when the bearish candle appear on 27 Dec, we have a bullish candle on the next day, this would give us an indication that a bullish trend is going to come.

True enough we can see that price start to surge from around $6 to a high of $8.76 in January 2023.

This is just one example that I am using, you can actually try to see if you can detect the piercing line in your trade by following the 3 rules or observations.

Summary

The piercing line candlestick chart is only one of the method you can see if there will be a bullish signal for a particular stocks.

It need to be used with other indicators or technical analysis. But for a start, we can use it to sense the market.

You can try to see if you are able to use this pattern to determine any stocks that is starting its bullish trend.

Appreciate if you could share your thoughts in the comment section whether you use ‘piercing line pattern’ and find it useful in your trading journey?

@TigerStars @Daily_Discussion appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.