The Dark Cloud Cover is a bearish reversal pattern which is formed after an upward movement.
The pattern consists of two candlesticks. The first trading day is represented by a white candle which supports an uptrend. The second trading day opens above the highest price of the white candle. Then the price falls and closes below the midpoint of the real body of the white candlestick.
The Dark Cloud weighs a lot on traders’ sentiment because a higher opening price is followed by a lower closing price.
Pattern scenarios and psychology
A long white candle is formed in an uptrend. Opening a position the next day, we see a gap to the upside. This can be signaling the end for the uptrend. When the trading session ends within the real body of the white candle, the market is falling. Under this scenario, bulls are recommended to rethink their trading strategy. After that, the trend reversal takes place.
The trend is more likely to reverse on the higher side if the black candlestick closes lower within the real body of the previous white candle. Potential reversal of the market can be defined as follows: the real body of the preceding white candlestick is long while the opening price of the second candle is above the closing price of the previous candlestick.
Pattern transformation
The Dark Cloud Cover comes down to the Shooting Star, confirming the bearish character of the pattern. Moreover, the Dark Cloud Cover forms the beginning of the Bearish Engulfing pattern which provides even more obvious bearish indication.
