Piercing is a two-candle bullish reversal candlestick pattern found in a downtrend. The first candle is red and has a larger than average body. The second candle is green and opens below the low of the prior candle, creating a gap, and then closes above the midpoint of the first candle.
The pattern shows a possible shift in the momentum from the downside to the upside, indicating that a reversal might happen soon.
The bearish version of the Piercing pattern is the Dark Cloud Cover candlestick pattern.
Inputs:
Traditionally, this candlestick pattern is recognized in conjunction with a specific trend direction, i.e. it might be important for the pattern if the price has been generally going up or down. The ‘Detect Trend Based On’ option allows you to specify which of the following methods to use to detect the trend:
SMA50 - the indicator compares the current price of the symbol to its Simple Moving Average (SMA) with the length of 50. If the current price is below the SMA, this price movement is considered a downtrend. If the price is above the SMA, it is an uptrend.
SMA50, SMA200 - the indicator separately compares the current price to the SMA50 and the SMA50 to SMA200. If the current price is above the SMA50 and SMA50 is above SMA200, this is considered an uptrend. If the price is below SMA50 and SMA50 is below SMA200, this is a downtrend.
No detection - the indicator does not take price trend into account.
By comparing two different SMAs, the 'SMA50, SMA200' option only detects stronger trends. When the trend is weak and the condition above is not met, no patterns will be detected. In contrast, the 'SMA50' option will also detect weaker trends.