The Dark Cloud Cover pattern is a candlestick pattern that signals a potential reversal to the downside.
It appears at the top of an uptrend and involves a large green (bullish) candle, followed by a red (bearish) candle that creates a new high before closing lower than the midway point of the previous green candle.
- Dark Cloud Cover is a long white body followed by a black body.
- The following black candlestick opens higher than the white candlestick's high and closes less than halfway above the first line's real body.
- It signals a bearish reversal during an uptrend.
Dark Cloud Cover checklist:
- Identify existing uptrend.
- Look for signals that momentum is slowing/reversing (stochastic oscillators, bearish moving average crossover, or subsequent bearish candle formations).
- Stocks will gap up, with the red candle opening above the previous green candle however, this is very rarely found in forex candlesticks as these candles will mostly open at the same level as the prior candle’s close, or very close to it.
- Ensure that the red candle closes lower than the midway point of the previous green candle.
- Look for confirmation of the new downward trend