Piercing Line Pattern: The Two-Candle Bullish Reversal at the Lows

Sellers close a red candle. The next session opens even lower — continuation looks certain. Then buyers step in and fight back, closing above the midpoint of the previous session's losses.

That recovery — from below the prior close to above the prior midpoint — is what makes the piercing line a meaningful reversal signal.

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What Is the Piercing Line?

Candle 1: A bearish (red) candle in the context of a downtrend.

Candle 2: A bullish (green) candle that:

• Opens below the close of Candle 1 (gap down — initial bearish continuation)
• Closes above the 50% midpoint of Candle 1's body

The 50% rule is the key requirement. A green candle that just recovers to 40% of the prior red body is not a piercing line — it doesn't carry the same conviction. The candle needs to pierce meaningfully into the prior session's losses.

Formation rules:

• Candle 1: Bearish red candle in a downtrend
• Candle 2: Opens below Candle 1's close; closes above the midpoint of Candle 1
• Candle 2 should not close above Candle 1's open (that would make it a bullish engulfing)
• Context: After a decline or downtrend

Strength rating: 70/100.

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The Psychology

Day 1: Sellers in control, another red candle in the downtrend.

Day 2: The market opens even lower — initial signal is bearish continuation. This is when weak buyers capitulate and stop-losses trigger.

Then buyers arrive. Aggressively. They not only stop the decline — they push price all the way up, through the midpoint of yesterday's entire session. By the close, they've reclaimed the majority of yesterday's losses.

The key is the gap down followed by recovery. If the session had simply opened at the prior close and gone up, it would be less significant. The fact that it opened lower (scaring out remaining buyers) and then recovered is the evidence that real buying interest exists at these prices.

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Position-Based Interpretation

At the Bottom of a Downtrend — Primary Context

The piercing line in a downtrend is a classic bottom-fishing signal. The deeper the preceding decline and the more oversold the asset, the more meaningful the pattern.

Stack with: RSI oversold, near a major support level, high volume on the green candle. These three elements alongside the piercing line create one of the stronger reversal setups available.

Near Key Support

A piercing line that opens with a gap below a major support level (briefly breaching it) and then closes well above it is exceptionally significant. The brief breach stopped out the remaining bulls, then buyers stepped in hard — the level held.

Mid-Trend Pullback

A piercing line after a short pullback in an overall uptrend signals that the pullback is over and the trend is resuming. The green candle's strong close above the prior midpoint shows buyers defending the trend.

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Piercing Line vs. Bullish Engulfing

The bullish engulfing is stronger because the green candle completely overcomes the red. The piercing line is slightly weaker (50%+ reclaim vs. full engulf) but still a high-quality signal.

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How to Trade the Piercing Line

Entry: Close of the green candle, or open of the following session.

Stop loss: Below the low of the second (green) candle, or below the overall structure low.

Take profit: Prior resistance, previous swing high, or a measured move equal to the combined range of both candles.

Volume: The green candle should ideally have higher volume than the red candle. If buyers came in bigger on the recovery day, that's institutional buying.

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