CandleFocus

Dark Cloud Cover

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Dark Cloud Cover is a bearish candlestick chart pattern that shows pessimistic sentiment in the markets. It forms when a prior uptrend is followed by a large red candle that opens above the previous close, but then closes well below that previous close. When the open of the red candle is above the previous close, it implies that market participants were initially optimistic but then reversed their sentiment and closed near the low of that period, creating a dark cloud.

Traders generally look for confirmation before trading a Dark Cloud Cover, typically by watching for further bearish candles. Thus, a bearish candle that follows this pattern with a lower close typically indicates that sellers have taken control of the stock and will continue to drive it lower. Conversely, an optimistic candle after the Dark Cloud Cover indicates buying pressure and can signal a possible turnaround or end of the current trend.

Dark Cloud Cover patterns must satisfy two criteria for confirmation: the bearish candle must open higher than the previous bullish candle and must close lower than the midpoint of the last bullish candle. If either of these is not met, it may not be considered a true Dark Cloud Cover. Both the bearish and bullish candles must also come with increased trading volume and a large body size to be considered meaningful.

Ultimately, a Dark Cloud Cover shows a shift in momentum that can be exploited by savvy traders who are able to take advantage of the situation and capitalize on a potential downtrend. However, confirmation through further bearish candles helps traders ensure that such a downtrend will actually materialize, and can prevent them from entering into a losing position.

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