Trading term
What is Dark cloud cover?
Dark cloud cover is a two-candle bearish reversal: a strong up candle, then one that opens above its high but closes below the midpoint of its body. The advance is rejected from a new high.
The second candle is the whole pattern. It opens above the previous candle's high — the most optimistic price the market has seen — and then spends the period being sold, finishing below the halfway point of the prior candle's body. Buyers were handed their best possible starting position and lost more than half the previous session's gains.
The midpoint requirement is what makes it testable. A red candle after a green one means nothing; a red candle that opens at a new high and gives back over half the prior advance is a measurable shift. If the second candle closes below the first candle's open entirely, it stops being dark cloud cover and becomes a bearish engulfing — the stronger version.
It is the exact mirror of the piercing line, and like that pattern it depends on a gap that occurs readily in stocks but rarely in continuously traded markets.
Candle two opens at $84.00, above the prior high, then closes at $80.60 — below the $81.00 midpoint of candle one's body. It stays above the prior open, so it isn't yet an engulfing.
For example
A stock rallies from $79.00 to close at $83.00, with a high of $83.40. The next session opens at $84.00 — above that high — then sells off all day to close at $80.60, below the $81.00 midpoint of the previous body. The rally rolls over from there.
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Explore Premium →Why it matters to you
The pattern gives you a precise threshold to check rather than a vague impression, and it comes with a natural invalidation level: the high of the second candle. That is the price at which the rejection reading stops being true, which makes the risk on any trade against it tight and easy to define.
⚠ Check the midpoint — don't eyeball it
The most common error is calling dark cloud cover on any red candle following a green one. Without the higher open and a close below the midpoint of the prior body, it is an ordinary pullback. Do the arithmetic, and treat the pattern as considerably weaker when it forms without a genuine gap up.