Piercing Line Pattern - Bullish Reversal Signal

Definition of the Piercing Line Pattern

The Piercing Line is a bullish reversal candlestick pattern that forms after a downtrend. It consists of two candles: the first is a strong bearish candle (long red body), followed by a bullish candle (green) that opens below the low of the previous candle but closes above the midpoint of the first candle's body. This pattern indicates that buyers have overwhelmed sellers, signaling a potential upward reversal.

How to Identify a Piercing Line

How to Trade the Piercing Line

Once a Piercing Line pattern is identified, traders can enter a long position after the second candle closes. A stop-loss is placed below the low of the pattern (either the low of Candle 2 or Candle 1). Profit targets can be the nearest resistance level or a 1:2 risk-reward ratio.

A more conservative strategy: wait for a confirming bullish candle (e.g., a third bullish candle) before entering.

Real-World Example

On the daily chart of EUR/USD, after a prolonged decline, a strong bearish candle appeared. The next day, price opened below the low but surged upward, closing above 70% of the previous bearish body. This formed a Piercing Line signal, and the price subsequently reversed and rallied 150 pips over five days.

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