How to trade the Clearance in the Clouds and Dark Cloud Veil patterns- «Просвет в облаках»

 Today we will consider the features of the formation and trading of reversal candlestick patterns "Clearance in the Clouds" and "Veil of Dark Clouds".

How are these patterns formed?

Piercing Pattern and Dark Cloud Cover are reversal candlestick patterns that herald the start of a correction or reversal in the current trend.

These patterns consist of two candlesticks and are mirrored. A gap in the clouds is formed at the lows of the price chart and indicates a possible upward reversal. A "curtain of dark clouds" appears at the highs and warns of the start of a downward move.

Figuratively speaking, the appearance of "dark clouds" in a growing market suggests that the bulls have run their horns against serious resistance and, if they fail to overcome it, a downward correction will follow. And vice versa - the appearance of a “gap in the clouds” after the market fall indicates that the bears are losing the initiative, and the bulls are full of optimism to turn the quotes up.

"Veil of Dark Clouds"

The appearance of this pattern on the price chart, according to Japanese traders, suggests that the market has little chance of continuing further growth. The pattern consists of two candles - white and black.

On a white candle, the market is actively growing, another local maximum is being set. Due to optimism and inertia of buying pressure, the next trading session opens with a gap up. But then the market falls and the black candle closes in the middle of the white body or even below.

As a result, the optimism of the bulls, expressed by a white candle, is completely leveled by a black candle. The bears managed to gather their strength, stopped the bulls and are now ready to go on the counterattack.

The deeper the closing price of the black candle goes into the body of the previous white candle, the stronger the sell signal. After the pattern is formed, the price movement below the low of the black candle gives a sell signal. Cancels the price growth signal above the high of the pattern.

"Light in the Clouds"

This pattern is the opposite of the previous pattern and appears at market lows during a downtrend. It also consists of black and white candles. With a downward movement, a strong black candle is formed, updating local lows. The next trading session on a wave of selling opens with a gap down, but then the market begins to recover and closes with a confident white candle in the middle of a black body or higher.

Thus, the bears failed to maintain the achieved values, and the bulls are ready to go on the offensive, the result of which may be an upward correction or even a trend reversal.

The higher the body of the white candle closes within the previous black one, the stronger the buy signal. After the appearance of this model on the chart, a further upward movement of the price above the high of the white candle suggests a purchase. Cancellation of the signal is the fall of quotes below the minimum of this model.

Template trading

Since Clearance in the Clouds and Veil of Dark Clouds are reversal patterns, you need to look for them at local lows and highs of the price chart. In a flat, these models can be used if they are formed when the price rebounds from the borders of the sideways range.

For trading, it is recommended to use higher timeframes (from H4 and higher), almost any liquid assets are suitable: stocks, futures, currency pairs.

"Gap in the clouds" - purchase

With a downward movement at the lows of the price chart, a reversal candlestick pattern “Gap in the Clouds” is formed.

After the confident closing of the white candle and the growth of quotes above its maximum, a purchase opens.

The stop loss is set just below the low of the pattern. To take profits, you can focus on significant resistance levels and Fibonacci retracement lines.

Putin's Dark Clouds Sale

During an uptrend, a “Dark Cloud Veil” reversal pattern appears at the highs of the chart.

After the formation of the model and the movement of quotes below the low of the black candle, you can open sales.

Stop loss is set above the high of the pattern. We are looking at strong support levels and Fibonacci lines as profit targets.

In the stock or futures market, the second candlestick of the pattern should open with a gap above/below (depending on the candlestick pattern) the closing price, or better yet, the high/low of the first candle.

In the Forex market, gaps rarely occur due to the round-the-clock trading mode, so you can use models without them.

If the body of the second candle of the pattern confidently closes more than half of the body of the first candle, this is a strong signal. If less than half, it is a weak signal.

In a sideways trend, you can use these patterns to trade from the boundaries of the range.

An amplifying factor is the presence of additional confirming technical analysis signals or trading indicators.