70% of cases when this pattern appears in the market, prices will reverse from up to down. Dark Cloud Cover candlestick pattern is very popular in technical analysis using the Japanese candlestick chart.
So, what is Dark Cloud Cover candlestick pattern? What characteristics and meaning does it have? Especially, how do you open options with high accuracy when this candlestick pattern appears?
Video on how to identify and use Dark Cloud Cover candle
What is Dark Cloud Cover?
Dark Cloud Cover (DCC) is one of the popular reversal candlestick patterns. It is considered a reliable signal for reversal traders. Like other reversal candlestick patterns from up to down, it only appears towards the end of an uptrend.
Identifying characteristics of Dark Cloud Cover candle
This is a combination of 2 candlesticks with characteristics as follows:
– First candlestick: is a strong bullish candlestick with large size.
– Second candlestick: has the opening price higher than the closing price of the first candle
(Gap Up). It then falls and closes below the midpoint of the first candle.
Dark Cloud Cover meaning
This candlestick pattern shows that the trend is going up steadily. Suddenly, a strong bullish candle appears, creating a gap up, and indicates that the bulls are dominant. However, instead of going higher, prices begin to decline sharply and close below the midpoint of the previous candle. Right there, the bears are strong enough to regain control of the market.
If you do not understand what Gap is in technical analysis, please read this article carefully: What is Gap? How does Gap form?
Dark Cloud Cover is better than Shooting Star
Combining the two candlesticks of Dark Cloud Cover candle, we will have a Shooting Star candlestick.
The price direction of the two patterns is similar. However, the Dark Cloud Cover candlestick patterns consist of 2 candles that mean a longer candle time period. That is why this candlestick pattern is more accurate than the Shooting Star candlestick.
How to trade Binary Option with Dark Cloud Cover candle
This is a strong reversal candlestick pattern from up to down. So if you want to use it effectively in binary options trading, you need to combine it with other indicators.
Combined with resistance
Conditions: A 5-minute Japanese candlestick chart. The expiration time of 15 minutes.
Open a DOWN option: When the candlestick pattern appears at the resistance zone.
Explanation: When the price enters the resistance zone, it often bounces back. The Dark Cloud Cover candlestick pattern is a reversal signal from up to down. Opening a DOWN option right now is very reasonable.
Combined with RSI divergence
Conditions: A 5-minute Japanese candlestick chart. The expiration time of 15 – 30 minutes.
Open a DOWN option: When the Dark Cloud Cover candlestick pattern appears with the RSI divergence.
Explanation: The bearish RSI divergence appears, indicating a slowing up momentum, which is a sign of exhausting. And when the pattern appears, it is the end of the bullish momentum. At that time, it is safe to open a DOWN option with a long expiration time.
Things to remember when trading
– Dark Cloud Cover pattern will be ineffective when used in a sideways market.
– To achieve the highest accuracy, it is necessary to combine with basic indicators such as RSI, MACD, SMA, etc.
– The deeper the 2nd candle drops, the higher the reversal probability of the pattern becomes.
All the basic information about this pattern has been introduced to you in the most detailed way. Try to apply and test its accuracy with a Demo account right now.