Greetings, worthy readers of the financial world! It is the goal of each of us to make profits in the financial markets through comprehensive analysis and making the right trade at the right time. In order to make the accurate trades, it is necessary to use a series of effective methods and strategies. One of the methods that has proven successful in this field is the Japanese candlestick patterns commonly used in technical analysis. One of the candlestick patterns that plays a key role in trading is the Piercing Pattern, also known as the Rising Sun pattern.
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| Piercing (Rising Sun) Pattern |
Topic: Piercing or Rising Sun
Type: Bullish
Trend direction: Reversal
Opposite pattern: Dark Cloud Cover
How is it Formed?
The Piercing candlestick pattern, sometimes also known as
the Rising Sun candlestick pattern, is a reversal formation that usually
indicates an upward trend in the price of an asset. The Piercing or Rising Sun
pattern can indicate that a downtrend may be reversing to an uptrend, meaning
that buyers are beginning to take control of the market. This pattern consists
of two candlesticks as listed below:
- The first candle: A bearish (down) candle with a long body and small wick appears while the trend continues downward. The candle is red (black) in color.
- The second candle: Buyer dominance strengthens as prices attempt to break out of the downtrend. The opening price of the second candle occurs below the closing price of the first candle, and its closing penetrates inside the body of the first bearish candle, completing above the midpoint of the first candle. Therefore, this candle has pierced the price upward. This candle is a long bullish (up) candle with a green (white) color.
The Piercing candlestick pattern is a formation indicating
the end of a downtrend and the prospective beginning of an uptrend. This
formation begins with a down candle, followed by a strong bullish candle that
opens below the closing price of the down candle, but closes above it. This
situation indicates that the bulls are coming back into the market and that a
bullish trend may be starting.
How to Trade?
The Piercing or Rising Sun candlestick pattern is
interpreted as a reversal pattern indicating the weakening of the downtrend and
the possible initiation of an uptrend. When this formation occurs, it
encourages bulls to enter the market by instilling hope.
Buy: To take a long position, buying can be executed either
immediately after the closing of the second candlestick or upon the formation
of a confirming candle.
Stop Loss: The stop-loss point should be placed at a level
2% or 3% below the price just below the formation's lowest point or at a more
secure price level immediately below it. The stop-loss level is often
determined based on a support level below the Rising Sun or Piercing Pattern or
as a specific percentage loss.
Target: Target levels can be determined based on factors
such as technical analysis tools, previous highs/lows, or Fibonacci retracement
levels. The risk and reward ratio should also be considered in each trade.
The following Euro/British Pound currency pair chart shows
an example of a trade using the Rising Sun or Piercing candlestick pattern:
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| Piercing or Rising Sun Pattern on the Euro/GBP chart |
Always keep in mind: The Piercing or Rising Sun pattern may not always provide a definitive buy signal on its own, which is true for other candlestick patterns as well. It is recommended to use this pattern in conjunction with other technical analysis tools and indicators to confirm it in forex trading.