|By Nathan Young|
July 11, 2017
Candlestick patterns are one of the most common ways technical trader s indicate a new trend or setup may be forming. The dark cloud cover is a candlestick setup that could be an indication of a bearish reversal looming.
What constitutes a dark cloud cover formation is first, there needs to be a bullish or upward candlestick. Once that has completed, the next day or trading period you have to look for a candle that opens higher than the previous close, has an upper wick indicating price went up, but the close is bearish and closes within the body of the previous candlestick. For confirmation, the third candle in this patter should be bearish as this can show there is a continuation and confirmation of the bearish trend.
Once this forms, you can begin looking at a bearish indication. However, this may be signal that the trend is changing, but there is no indication of how long the trend may be changing. When looking for this particular pattern, it may be beneficial to have momentum indicators or other tools to help you gauge the probability of the trend changing. With all patterns and tools, they may not be one hundred percent accurate and should be used with caution.
Search the Internet to see how other people use this and begin to incorporate it into your current trading setup. Test on a demo account first so you are not taking unnecessary risk and this allows you to play with setups to see if this is the right fit for you. There is not specific time range which with this works better so take the time and try the various time ranges. Be sure to take a look at Macroaxis and use the tools within here to also help grow your trading knowledge.