What is a Piercing Pattern in Forex?

Understanding Piercing Pattern in Forex

Piercing pattern is a two-candle bullish reversal formation that appears at the bottom of downtrends, signaling potential upward price movement. The pattern begins with a long bearish candle extending the downtrend, followed by a bullish candle that opens below the prior day's low (gapping down) but closes within the upper half of the first candle's body. This represents a rejection of lower prices and shift in momentum from bears to bulls, similar to but simpler than the morning star pattern.

Pattern Requirements

For a valid piercing pattern, the second candle must open below the first candle's low, showing initial weakness. However, it must then rally strongly to close above the midpoint (50%) of the first candle's real body—the higher the close, the stronger the reversal signal. The pattern works best after extended downtrends at significant support levels where exhausted sellers meet aggressive buying pressure. Volume increasing on the second candle adds conviction to the reversal thesis.

Trading and Confirmation

Wait for the second candle to close before confirming the pattern—don't enter intraday based on candle progress. Combine with oversold RSI readings (below 30) or bullish divergence for higher probability. The pattern gains strength at confluence zones combining support, Fibonacci levels, and round numbers. The bearish counterpart is the Dark Cloud Cover pattern, which signals potential reversals at tops.