Bullish Piercing Line Pattern is a bottom reversal pattern. A long black candlestick is followed by a gap lower during the next day while the market is in downtrend. The day ends up as a strong white candlestick, which closes more than halfway into the prior black candlestick’s real body.

Recognition Criteria:
1. Market is characterized by downtrend.
2. We see a long black candlestick.
3. Then we see a long white candlestick whose opening price is below previous day’s low on the second day.
4. The second day’s close is contained within the first day body and it is also above the midpoint of the first day’s body.
5. The second day however fails to close above the body of the first day.

Explanation:

The market moves down in a downtrend. The first black real body reinforces this view. The next day the market opens lower via a gap. Everything now goes, as bears want it. However suddenly the market surges toward the close, leading the prices to close sharply above the previous day close. Now the bears are losing their confidence and reevaluating their short positions. The potential buyers start thinking that new lows may not hold and perhaps it is time to take long positions.

Important Factors:

In the Bullish Piercing Pattern, the greater the degree of penetration into the black real body, the more likely it will be a bottom reversal. An ideal piercing pattern will have a real white body that pushes more than half way into the prior session’s black real body.

A confirmation of the trend reversal by a white candlestick, a large gap up or by a higher close on the next trading day is suggested.