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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
In my book,
Encyclopedia of Candlestick Charts  , pictured on the right,
I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines
in the tests.
The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines,
performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators),
and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy
by clicking on the above link.
The piercing pattern acts in theory as it does in reality, as a bullish reversal, ranking 21 out of 103 candlestick patterns where 1 is best. Overall performance is good, too, suggesting
the price trend after the breakout is a lasting and profitable one. The piercing pattern does best in a bear market, especially after a downward breakout. Upward breakouts in a bull
market are the weakest of the four combinations of bull/bear market and up/down breakout direction.
Important Results
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Theoretical performance: Bullish reversal
Tested performance: Bullish reversal 64% of the time
Frequency rank: 40
Overall performance rank: 13
Best percentage meeting price target: 67% (bull market, up breakout)
Best average move in 10 days: -6.57% (bear market, down breakout)
Best 10-day performance rank: 13 (bear market, down breakout)
All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.
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 Piercing Pattern
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Discussion
The theoretical performance of the piercing pattern candlestick is as a bullish reversal and testing found that it acts that way 64% of the time. That is quite good. Better yet,
the overall performance ranks 13th out of 103 candles. That is wonderful and with a frequency rank of 40, you should be able to spot it often in a historical price series or real time.
The best average move 10 days after the breakout is a drop of 6.57% in a bear market. I consider moves 6% or larger to be good ones, so this candlestick does well. The performance
rank is 13, which is near the top of the list, too.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Two. |
| Price trend leading to the pattern | Downward. |
| Configuration | Look for a black candle followed by a white one that opens below the black candle’s low and closes between the midpoint of the black body and opening
price. |
Three Trading Tidbits
If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book
where the tips appear.
- Piercing pattern candles that appear within a third of the yearly low perform best -- page 619.
- Select tall candles for the best performance -- page 619.
- Avoid trading piercing patterns when the primary trend is downward -- page 620-621.
Example
The daily chart shows two piercing patterns circled in red. Both appear in a brief downward retrace of the primary upward price trend.
Both act as reversals.
The first candle is black and the second is white. The white candle opens lower, but closes above the mid point of the black body and below the open.
It is difficult to tell from the chart
if candle A shows an upward breakout or not. Candle B certainly does when price closes above the top of the
candle pattern the next day. The upward trend resumes after that.
The chart patterns shown here reminds me of a simple ABC correction. Price moves in an uptrend then reverses to a down-up-down jog that is the
ABC.
-- Thomas Bulkowski
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