How to Trade with the Piercing Line Pattern - DailyFX

Posted: 30 Aug 2019 06:55 AM PDT

The piercing line pattern consists of two candlesticks, which suggests a potential bullish reversal within the forex market. This piercing pattern should not be used in isolation but rather in conjunction with other supporting technical tools to confirm the piercing pattern.

This article will cover:

What is a piercing pattern?
How to identify a piercing pattern on forex charts
Top tips for trading with the piercing line pattern
How reliable is the piercing line?

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What is a piercing pattern?

The piercing line pattern is seen as a bullish reversal candlestick pattern located at the bottom of a downtrend. It frequently prompts a reversal in trend as bulls enter the market and push prices higher.

The piercing pattern involves two candlesticks with the second bullish candlestick opening lower than the preceding bearish candle. This is followed by buyers driving prices up to close above 50% of the body of the bearish candle.

The image below highlights the intricacies of the two candlesticks making up the piercing pattern:

How to identify a piercing pattern on forex charts?

Characteristics of a piercing pattern:

Occurs at the bottom of a downtrend
Includes a bearish and bullish candle
The bullish candle opens lower than the close of the bearish candle
Bullish candle then closes above the 50% level of the bearish candle body

What does this tell traders?

Potential trend reversal to the upside (bullish reversal)
Bears (sellers) are losing impetus at this key price level

Advantages of trading with the bullish engulfing candle:

Easy to identify for both novice and experienced traders
Possibility of favourable risk-reward ratios
Desirable entry levels can be obtained after confirmation of the piercing pattern

Trading with the Piercing Line Pattern: Top Tips & Strategies

The weekly EUR/USD chart above shows the presence of a piercing pattern highlighted in blue. Preceding this pattern is a strong downtrend as indicated by lower lows and lower highs. This example illustrates the use of price action to determine the downtrend, however, traders often prefer the use of a technical indicatorsuch as the moving average for confirmation (price needs to be above the long-term moving average).

As mentioned previously, the piercing pattern does require further confirmation before entering into a long trade. In this example, the RSI oscillator has been used as additional confirmation of a reversal. From the chart, the RSI indicates an oversold signal which reinforces the validity of the piercing pattern.

Stop levels can be placed at the recent low (low of the bullish piercing pattern candle), while the take profit (limit) can be identified using Fibonacci extensions or price action.

How reliable is the piercing line?

Piercing line patterns signal bullish reversals however, the reliance of this pattern alone is not recommended. Further support signals should be used in concurrence with the piercing pattern. Trading against a dominant trend can be risky so finding multiple confirmation signals is encouraged to verify the pattern.

Advantages	Limitations
Occurs frequently within financial markets	Signifies bullish reversal patterns only
Opportunity for favourable risk-reward ratios	Trading the piercing pattern requires the use of other technical indicators and oscillators
Piercing patterns are easy to identify for novice traders	Entails looking at the overall market trend and not just the candlestick pattern in isolation

Learn more about trading with candlestick patterns

1. Rising wedge and falling wedge patterns

2. Head and shoulders

3. Double top

4. Double bottom

EUR/USD Forex Technical Analysis – Next Major Downside Target is 1.0838 - Yahoo Finance

Posted: 30 Aug 2019 11:23 AM PDT

The Euro is trading sharply lower late Friday after taking out its August bottom. The size of the break comes as no surprise since the daily, weekly and monthly charts all showed there was plenty of room to the downside under this level. Take that 1-hour and 4-hour chart-watchers. I'll bet you didn't that one coming.

The strong U.S. economy is partly to blame for the Euro's weakness, but most of the selling is being fueled by short-sellers who are looking for aggressive easing by the European Central Bank despite protests by some policymakers, who don't feel the need for hardline stimulus.

At 17:50 GMT, the EUR/USD is trading 1.0969, down 0.0088 or -0.80%.

Daily Technical Analysis

The main trend is down according to the daily swing chart. The first wave of selling came in on Friday when sellers took out 1.1052 with conviction. The second wave of sellers hit the single currency hard when the August 1 bottom was violated.

The daily chart shows there is plenty of room to the downside with no major support coming in until the May 11, 2017 main bottom at 1.0838.

Daily Technical Forecast

Based on the early price action and the current price at 1.10969, the direction of the EUR/USD into the close is likely to be determined by trader reaction to a steep downtrending Gann angle at 1.1004.

Bearish Scenario

A sustained move under 1.1004 will indicate the presence of sellers. If this move continues to generate enough downside pressure then look for the selling to possibly extend into a downtrending Gann angle at 1.0890.

Crossing to the weak side of the angle at 1.0890 will put the EUR/USD in a bearish position with 1.0838 the next target.

Bullish Scenario

Overtaking the downtrending Gann angle at 1.1004 will signal the return of buyers late in the session. This will probably be caused by profit-taking ahead of the long U.S. holiday weekend and end of the month position squaring. The next potential upside target will be the old bottom at 1.1027.

This article was originally posted on FX Empire

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