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Bulkowski’s Dark Cloud Cover

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As of 02/15/2019
  Industrials: 25,883 +443.86 +1.7%
  Transports: 10,568 +30.06 +0.3%
  Utilities: 739 +3.09 +0.4%
  Nasdaq: 7,472 +45.46 +0.6%
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Tom's Targets    Overview: 02/14/2019
26,000 or 24,600 by 03/01/2019
10,900 or 9,900 by 03/01/2019
755 or 725 by 03/01/2019
7,700 or 7,050 by 03/01/2019
2,825 or 2,650 by 03/01/2019

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Dark cloud cover is a two line candlestick that has poor reversal performance. Just 60% of the time, price changes direction from up to down in a bull market. However, once the turn is made and price breaks out, price trends, ranking 22nd out of 103 candle patterns, where 1 is best.

Dark Cloud Cover Important Results

Theoretical performance: Bearish reversal
Tested performance: Bearish reversal 60% of the time
Frequency rank: 46
Overall performance rank: 22
Best percentage meeting price target: 62% (bear market, down breakout)
Best average move in 10 days: 5.36% (bear market, up breakout)
Best 10-day performance rank: 19 (bull market, up 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.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

The ideal dark cloud cover candlestick
Dark Cloud Cover
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Dark Cloud Cover Discussion

I like the name, dark cloud cover, but have trouble remembering it when I am searching for candles. Maybe it is because the pattern has a reputation as a reversal candle -- and it does reverse -- but nothing like the expectations. Just 60% of the time does a reversal occur.

The frequency rank is 46 out of 103, so it is about mid list in terms of showing in a historical price trend. Once it does appear, it ranks 22nd for performance and that means price has a tendency to trend after the breakout.

The best average move 10 days after the breakout belongs to dark cloud cover with upward breakouts in a bear market. Price climbs 5.36%. A good move would be 6%, so this is a bit short. The best performance rank after 10 days is 19th, which is quite good.

Dark Cloud Cover Identification Guidelines

Number of candle linesTwo.
Price trend leading to the patternUpward.
ConfigurationLook for two candles in an upward price trend. The first candle is a tall white one followed by a black candle with an opening price above the top of the white candle (an opening price above the prior high), but a close below the mid point of the white body.
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Three Trading Tidbits for Dark Cloud Cover

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.

  1. Dark cloud cover candles that appear within a third of the yearly low perform best -- page 185.
  2. Dark cloud cover breaks out downward most often -- page 187-188.
  3. Reversals occur most often within a third of the yearly low -- page 188.

Dark Cloud Cover Example

The dark cloud cover candlestick on the daily scale

Dark cloud cover, circled in A, appears on the daily scale. Price moves in a brisk upward trend, forming a tall white candle. The next day, the clouds move in forming a black candle that begins the day with a higher open but closes below the middle of the white candle. The change from bullish to bearish occurs in just one candle. It also represents a trend change from up to down when price breaks out downward. That happens when price closes below the lowest low in the dark cloud cover. Thereafter, price trends lower in a comparatively smooth move downward.

Shown is not the preferred setup. The best setup for the dark cloud cover candlestick is for it to appear when price is trending lower. An upward retrace of that down move appears followed by dark cloud cover. It signals a reversal and when price breaks out downward, and the stock joins the downward primary trend already in existence. It is like a swimmer moving with the current turning against the current to avoid a buoy followed by a resumption of him swimming with the current.

-- Thomas Bulkowski

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See Also

Written by and copyright © 2005-2019 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners. Follow that car, Godzilla, and step on it!