How to Make Money Trading the Piercing Line Pattern in Olymp Trade

What is the Piercing Line Pattern?

The Piercing Line Pattern is a bullish reversal candlestick pattern that occurs at the end of a downtrend to signify the reversal of such a downtrend into an uptrend.

The pattern consists of two candlesticks – the first is a long bearish candlestick while the second is a long bullish candlestick opening below the close of the first and closing at or above half of the first candlestick’s body.

The first candlestick opens and closes lower than the open price and is therefore a long bearish candlestick. The second candlestick gaps down to open at a level lower than the close of the first and grows upwards to close at a level at least half of the first candlestick’s body, or even higher.

The fact that the second candlestick is bullish and closes above the midpoint of the first candlestick’s body is an indication of a strong buying pressure.

It shows that during the time frame of the formation of the second candlestick, buyers overpowered the sellers and the downtrend can potentially reverse upwards.

The Piercing Line Pattern tends to provide a stronger bullish reversal signal if preceded by a long downtrend. And, a downtrend, however small is enough for the pattern to hint towards the reversal of such a trend.

Note:

Candlesticks alone are not enough to use to judge the market. You need further confirmation by the use of technical indicators that a reversal is imminent.

The Piercing Line Pattern performs best when combined with Relative Strength Index (RSI), Moving Average Convergence and Divergence (MACD), or the Stochastic Oscillator. Using the pattern with Support levels is also another confirmatory test.

If you are a Fixed Time Trader, you must remember to set your trade duration at least 3 times the candlestick time frame. By doing this, you will be providing the price enough time to move and eventually favor your prediction.

Trading the Piercing Line Pattern on Olymp Trade.

Since we can now identify the Piercing Line Pattern, can we now make money trading the pattern?

That is the most crucial question which we seek to answer here. We need to develop the know-how of making good money trading this pattern and it is until then that the pattern can be significant in our trading.

How to Trade the Piercing Line Pattern on Olymp Trade.

1. Identify a Downtrend.
2. Identify the Piercing Line Pattern.
3. Confirm the Downtrend Reversal.
4. Enter a Buy Position.
5. Adjust your Stop Loss.
6. Adjust your Take Profit.

Let us get the details of each step next.

1. Identifying a Downtrend.

You definitely know how to spot a Downtrend. This occurs in a chart where prices keep falling forming both lower highs and lows. The reason we are looking for a Downtrend is that we know that the Piercing Line Pattern occurs at the end of such a trend.

We cannot be looking for the pattern on an Uptrend and that’s why we are first establishing that it is a downtrend we are on. That takes us to the next step.

2. Identifying the Piercing Line Pattern.

The pattern consists of two candlesticks. The first is a long bearish candlestick while the second is a long bullish candlestick opening below the close of the first and closing at or above half of the first candlestick’s body.

The first candlestick opens and closes lower than the open price and is therefore a long bearish candlestick. The second candlestick gaps down to open at a level lower than the close of the first and grows upwards to close at a level at least half of the first candlestick’s body, or even higher.

That is the formation you need to spot for you to confidently say that you identified the Piercing Line Pattern.

3. Confirming the Downtrend Reversal.

Here, you want to be certain that the downtrend will actually reverse upwards as anticipated. Technical indicators such as the RSI and MACD will come into play here.

The technical indicators may show an oversold condition, a bullish divergence, or anything that hints to a bullish signal.

The occurrence of the Piercing Line Pattern close to a Support zone is another common and sure confirmation. The subsequent candlesticks after the pattern closing higher than the second candlestick of the pattern or even gapping up is also a sure sign of bullish dominance.

Successful Confirmation of the downtrend reversal leads you to the next step.

4. Entering a Buy Position.

Once the downtrend has been confirmed to reverse, there is nothing more to wait for. The wait is over and it’s now time to enter that Buy Position you have been longing to enter.

5. Adjusting your Stop Loss.

In trading terms, it is extremely dangerous to trade without Stop Loss orders. They save you a big deal on unsuccessful trades and you need to embrace them as a trader.

In the case of the Piercing Line Pattern, the ideal position for your Stop Loss is just below the low of the second candlestick of the pattern – the bullish candlestick.

Note – This only applies if you are trading Olymp Trade Forex not FTT

6. Adjusting your Take Profit.

There is no prior price move you can measure to estimate the distance the uptrend will cover. You therefore may need to employ your own Profit-taking tactics as a trader.

The tactics you apply may include;

• The use of trailing stops where you keep moving your stop loss up as the trend grows.
• You may also decide to apply risk to reward ratio to set your Take Profit at a reasonable level with respect to the Stop Loss level.
• Additionally, you may decide to identify a major resistance area where the price seems to reverse downwards and take profits from that level.

The will to choose the Profit Taking method which suits you best as a trader is with you.

Conclusion.

There is not even the slightest detail about the Piercing Line Pattern that has been excluded from the above discussion. You literally have everything about the pattern. Therefore, go make money on your Olymp Trade account with that knowledge.