Dark Cloud Cover Candlestick Pattern: A Bearish Signal After the Rally
When a market’s been climbing and confidence is high, it’s easy to overlook signs of trouble. But the dark cloud cover candlestick pattern often appears at those exact moments—hinting that buyers might be losing control and sellers are ready to take over.
This two-candle reversal pattern shows up at the top of uptrends and acts as an early warning that momentum could be shifting.
Let’s go over how it forms, what it means, and how traders use it to anticipate reversals before they gain speed.
What the Dark Cloud Cover Pattern Looks Like
A bearish rejection after a bullish push
The dark cloud cover candlestick pattern is made up of two candles:
1. The first candle is bullish (usually green), continuing the uptrend.
2. The second candle is bearish (typically red) and opens above the prior high—but then closes deep into the first candle’s body (at least halfway or more).
This sudden rejection of higher prices creates the “dark cloud” imagery—it looks like the uptrend just hit a wall.
The second candle’s ability to reverse a strong opening is what gives the pattern its power.
Why the Dark Cloud Cover Pattern Matters
What it tells us about buyer and seller sentiment
The dark cloud cover candlestick pattern is all about a shift in pressure.
Buyers are still in control during the first candle. But the next session starts with a higher open—only for sellers to quickly step in and push prices back down.
This action shows that:
The bullish momentum might be fading
Buyers may have overextended the move
Sellers are now asserting dominance
While it’s not a guarantee of a trend reversal, it is often seen as a strong bearish warning, especially when supported by other signals.
Where It Appears and Why That’s Important
Placement is everything
This pattern carries the most weight when it appears after a clear uptrend or near key resistance levels.
Here’s a quick overview:
Always combine with confirmation—don’t rely on the pattern alone.
How Traders Use the Dark Cloud Cover Pattern
Reading the signal and acting with confirmation
The dark cloud cover candlestick pattern is often a setup for a potential short entry—but only after traders see follow-through.
Here’s a simple process:
1. Spot the pattern after an uptrend—look for the red candle piercing halfway into the green one.
2. Wait for confirmation—a third bearish candle or a break below the pattern’s low.
3. Use tools like RSI, volume, or key resistance zones to add context.
Quick strategy table:
Example: Dark Cloud Cover in Action
Imagine the S&P 500 is rallying into a key resistance zone. A green candle forms and closes strong. The next day, price gaps up—but sellers quickly step in, and the candle closes well below the midpoint of the green candle.
That’s your dark cloud cover candlestick pattern.
If the following candle drops again—and RSI begins falling from overbought territory—traders may treat it as a sign to exit long positions or consider short trades with stops just above the high.
The dark cloud cover candlestick pattern offers a clear visual signal that the uptrend may be running out of steam. It’s especially powerful at resistance levels or after long rallies—and when confirmed, it helps traders get ahead of potential reversals.
Up next, we’ll explore the Bullish Harami, a pattern that tells a quieter but still important story about momentum shift.