The Dark Cloud Cover Pattern Forex Strategy is a forex price action trading strategy designed to capture bearish market reversals.
Here, you will learn what a dark cloud cover forex pattern looks like and how to trade it.
Trading Parameters & Requirements
- Currency pairs to trade: any
- Timeframes: you can use the daily or the 4hour timeframes for this trading system.
- Indicators: none is required, but you may need the zigzag indicator mt4 for managing your trailing stop to lock in profits as trade moves in your favor.
The Dark Cloud Cover Pattern Explained
When dark cloud cover patterns form in resistance levels, they indicate that the bulls may be losing steam, the bears are now taking over, and the price may start dropping, forming a downtrend.
This trading system can achieve The potential for selling at the very top.
The dark cloud cover pattern is a 2-candlestick pattern, and it is a bearish reversal candlestick pattern:
- the first chart candlestick is bullish
- the second candlestick is a bearish candlestick that must close at 50% or more than 50% of the length of the first candlestick
- Also, the low of the 2nd candlestick must not go below the low of the first candlestick. Otherwise, that would turn out to be a bearish engulfing pattern.
The Selling Rules Of The Dark Cloud Cover Pattern Forex Trading Strategy
Since this is a bearish candlestick pattern, you only need to look for selling opportunities.
The ideal chart locations where you should be looking to sell are levels where the price has been heading up in a bullish trend and hits resistance levels.
- When a dark cloud cover pattern forms, place a sell stop order 1-2 pips under the low of the 2nd chart candlestick
- place your stop loss 2-10 pips above the high of the 2nd candlestick
- To take profit, aim for a 1:3 risk to reward ratio or otherwise, look for previous swing lows and use them as take profit target levels but make sure the risk: reward is 1:2 or more excellent before you use them.
- Trade management: if the price goes as expected, trailing stops to lock in your profits.
Advantages of The Dark Cloud Cover Pattern Forex Trading Strategy
- a relatively simple pattern to spot and trade
- simple trading rules
- you can achieve excellent risk: reward outcomes with this trading system
- If you use swing trading and larger timeframes like the daily or the 4hr, the potential for making 100 pips or more profit in one trade is there.
- can also use this system on a smaller timeframe for scalping
Disadvantages of The Dark Cloud Cover Pattern Forex Trading Strategy
- Not all dark cloud cover patterns you can spot on your chart are tradeable. It is where the formation, or the location of the form on the chart, matters. So you must first do your homework and find out the possible price turning points and then wait for this dark cloud pattern to form. Levels like: resistance levels, support turned resistance levels, downward trendline bounces, and fib retracement levels should be marked or already known beforehand.