Piercing Pattern
A bullish two-candlestick reversal pattern near the bottom of a trading range — a red candle followed by a green candle whose body covers at least half the red candle's body.
In plain language
Near the bottom of a range where a stock has been trading sideways, one specific two-candle pattern signals that buyers may be about to take control.
It starts with a down day, then a strong up day that claws back a meaningful part of the previous day's loss — enough to suggest the selling pressure is fading.
How it works
The workbook, in Chapter 15.5.6, defines a Piercing Pattern as "a two-candlestick pattern that occurs near the bottom of the congestion area... First candle is red signifying a down day and the second is green signifying an up day... a significant gap in the red candlestick's close and green candlestick's open... The green candlestick's body must cover at least half of the previous day's red candlestick."
It is the mirror image of Dark Cloud Cover, a bearish pattern the same footnote describes as occurring near the top of a congestion area instead — same two-candle shape, opposite colours, opposite location, opposite signal.
A worked example
Illustrative, following the workbook's own definition. A stock has traded between Rs 480 and Rs 520 for eight weeks — a congestion area. Near the bottom of that range, a red candle opens at Rs 500 and closes at Rs 490 (a Rs 10 body). The next day gaps down to open at Rs 485, then rallies to close at Rs 497.
The green candle's body runs from Rs 485 to Rs 497 — Rs 12 — comfortably covering more than half of the red candle's Rs 10 body (measured from its Rs 490 close). That satisfies the workbook's "covers at least half" test, signalling a possible bounce back up within the range.
Why NISM asks about it
Chapter 15.5.6 (Piercing Pattern) sits directly after 15.5.5 (Dark Cloud Cover), sharing the same congestion-area footnote. Expect a question distinguishing the two by candle colour order and by top-versus-bottom location within the range.
Common exam traps
- Piercing Pattern (bullish, bottom of range) is the mirror of Dark Cloud Cover (bearish, top of range). A question describing only "a two-candle reversal near a congestion boundary" tests whether the candidate can tell them apart from colour order and location alone.
Check yourself
1.The piercing pattern is most likely to have which of the following features?
- a)A two-candlestick pattern that occurs near the bottom of the congestion area
- b)A three-candlestick pattern that occurs near the top of the congestion area
- c)A two-candlestick pattern that occurs near the top of the congestion area
- d)A three-candlestick pattern that occurs near the bottom of the congestion area
Show the answer
Answer: (a) A two-candlestick pattern that occurs near the bottom of the congestion area
Two facts must both be right: the piercing pattern uses two candlesticks, and it forms near the bottom of a congestion area, which fits its bullish meaning.
Option C swaps the location — that describes dark cloud cover, the bearish two-candle mirror image found near the top of a congestion area. Options B and D swap the count: the three-candle patterns in this chapter are the morning star (bullish) and the evening star (bearish).
The numeric test for a piercing pattern is that the green candlestick’s body must cover at least half of the previous day’s red candlestick, after a significant gap between the red close and the green open.
Where this is taught
Free preparation for NISM Series XVRelated terms
- ChannelTwo parallel trendlines, one through the highs and one through the lows, boxing price action into a range — traders trade within it, or watch for a breakout from it.
- Congestion areaA price range where a stock trades repeatedly for an extended period, typically several weeks, before eventually breaking out upward or downward.
- Support and resistancePrice levels where a move tends to pause or reverse — support where demand concentrates and forms a floor, resistance where supply concentrates and forms a ceiling.
- Hanging ManA bearish reversal candle that appears after an up move — a small real body with a long lower shadow at least twice that body — and it is only a warning until the next candle closes lower.
- HammerA bullish reversal candle that appears after a price decline — a small real body with a lower tail at least twice that body — valid only once the next candle confirms by moving the price up.
- Engulfing patternA two-candle reversal pattern in which the second candle's real body completely swallows the first candle's body — green over red is bullish, red over green is bearish.
- Dark Cloud CoverA bearish two-candle reversal near the top of a congestion area: a bullish candle, then a gap-up candle that turns bearish and closes below the midpoint of the first.