Halfway is the whole test

A piercing pattern is a bullish two-candle reversal after a decline. Dark cloud cover is the bearish version after a rise. They pass the same checks, in opposite directions.

For a piercing pattern, the first candle is red and the trend before it is down. The second candle opens below the first candle's close. It then rallies and closes above the midpoint of the first candle's body.

Dark cloud cover flips every part. The trend is up and the first candle is green. The second opens above the first candle's close, then sells off and closes below the midpoint of the first body.

There's a ceiling on the second close too. If a piercing candle closes above the first candle's open, its body covers the whole first body. That makes it a bullish engulfing instead. The same goes for a dark cloud that closes below the first candle's open.

The midpoint is the first candle's open plus its close, divided by two. Wicks don't count here, only the body.

Take a stock that's been falling for days. A red candle opens at 74.80 and closes at 72.20. The midpoint is 74.80 plus 72.20, divided by two, which is 73.50.

The next candle opens at 71.90. That's below 72.20, so the open check passes. It closes at 73.85, which is above 73.50 and still below 74.80. That's a piercing pattern.

Now change one number. Say the second candle closes at 73.30 instead. It recovered 1.10 from the 72.20 close, which looks strong. But it fell 0.20 short of the midpoint, so it fails. Candlestick books call that a thrusting line, and treat it as weaker.

If it had closed at 74.95, above the 74.80 open, it would be a bullish engulfing. Same two days, three different answers.

The first near miss is skipping the trend check. A piercing shape in the middle of a rally isn't a reversal, because there's nothing to reverse. The same goes for a dark cloud in a downtrend. When one of these fails, ask first what the trend was.

The second is eyeballing the midpoint. On a busy chart, a close that's a few cents short looks like it made it. Do the arithmetic. It takes seconds and it settles the question.

The third catch is the open. On a 1-hour chart during regular hours, each candle usually opens right at the prior close. A real open beyond the close mostly shows up on a session's first candle, or on the daily chart.

Whether a one-cent difference counts as opening beyond is a judgment call. Pick a rule for it and apply it the same way every time.

A pattern tells you where to draw the level. For a piercing pattern, support sits at the lowest low of both candles, wicks included. For dark cloud cover, resistance sits at the highest high of both.

In the piercing example, the first candle's low was 72.05 and the second dipped to 71.40. Support is 71.40, not the 73.50 midpoint and not either close.

Draw these levels from the daily, 4-hour and 1-hour charts. Lower charts are for timing the entry, not for drawing levels.

The level works both ways. While price holds above a piercing support, it favours longs. Once a candle closes below it, the idea is wrong and you're out. A wick that pokes through and returns doesn't count as an exit.

If another pattern marks the same price, such as an older hammer low, give the level more weight. Two separate reasons at one price beat one.

Say a stock climbed for a week. A green candle opens at 120.40 and closes at 123.60, with a high of 123.90. The midpoint is 122.00.

The next candle opens at 124.10, above the 123.60 close, and peaks at 124.55. It sells off and closes at 121.70. That's below 122.00 and above 120.40, so it's dark cloud cover. Resistance is 124.55.

Don't sell at 121.70 just because the pattern finished. Wait for price to bounce back toward resistance and stall on a lower chart. An entry near 123.40 keeps your stop close, at a candle close above 124.55.

Then find the next support below and measure. If it's at 120.90, reward from 123.40 is 2.50 and risk is 1.15. That's better than two to one, so the trade qualifies. If price never bounces, let it go.