Short answer
What is a dark cloud cover pattern?
Dark cloud cover is a two-candle bearish reversal after a rise: a long green candle, then a red candle that opens above the green close and closes below the midpoint of the green body, but above the green open. It shows sellers wiping out more than half of the previous candle's gain. If the red close goes below the green open, the pattern becomes a bearish engulfing.
Key takeaways
- Two candles after a rise: a long green candle, then a red candle that opens above the green close.
- The red candle must close below the midpoint of the green body but above the green open, taking back more than half but not all of the green body.
- In the classic definition the red candle opens above the green candle's high; on Indian stock charts many traders accept an open above the green close.
- A red close below the green open makes the pair a bearish engulfing; a close above the midpoint is not a dark cloud cover.
- At a fresh supply zone the red candle is the strong move away from the zone; on a lower timeframe it is often the leg out of a Rally-Base-Drop.
- Most cash-market swing traders use it to exit or protect a long position; short trades in the cash market must be closed the same day.
What is a dark cloud cover pattern?
Dark cloud cover tells the story of a rally that runs into sellers. The long green candle shows buyers in control. The next candle opens even higher, so the rise looks set to continue, but sellers take over and drive the close back below the halfway point of the green body. More than half of the previous candle's gain is wiped out in one period, like a dark cloud passing over a bright day. Its bullish mirror after a fall is the piercing pattern.
- A rise before it: the pattern needs an advance to reverse.
- Candle 1: a long green candle.
- Candle 2: a red candle that opens above the green close. In the classic definition it opens above the green high, with a gap.
- The close: below the midpoint of the green body, but above the green open.
Midpoint = (Green open + Green close) ÷ 2A red close below this level, but above the green open, completes the dark cloud cover.What is the difference between dark cloud cover and bearish engulfing?
Both are two-candle bearish reversals after a rise, and both start with a green candle followed by a red one that opens higher. The difference is where the red candle closes. Dark cloud cover closes below the green midpoint but stays above the green open. A bearish engulfing closes below the green open, so its body covers the whole green body. The engulfing reverses the whole previous period; dark cloud cover reverses most of it. The bearish engulfing is covered as the mirror of the bullish engulfing.
| Feature | Dark cloud cover | Bearish engulfing |
|---|---|---|
| Forms after | A rise | A rise |
| Red open | Above the green close | At or above the green close |
| Red close | Below the green midpoint, above the green open | Below the green open |
| Share of the green body taken back | More than half, less than all | All of it |
| What it shows | Sellers erased most of the gain | Sellers reversed the whole previous period |
| Stop loss for a short | Above the pattern high | Above the pattern high |
How does dark cloud cover relate to a supply zone?
By the 50% rule, the long green candle and the strong red candle of a dark cloud cover are usually both exciting candles: each body is more than half of its high-to-low range. Two exciting candles back to back have no base candle between them, so on its own timeframe dark cloud cover is not a supply zone by itself. It connects to zones in two ways.
- At an existing fresh supply zone: the green candle is price rallying into the zone, and the red candle is the strong move away from it, the same job a leg out does. It shows the sell orders resting in the zone absorbing the buying.
- On a lower timeframe: a daily dark cloud cover often unpacks into a Rally-Base-Drop. The green day's rise is the leg in, a short base forms around the red day's high, and the red day's fall is the leg out. That lower-timeframe base is where the supply zone is marked.
Location matters more than the shape. A dark cloud cover in the middle of a range, or just above a fresh demand zone, has little behind it. One inside a fresh daily or weekly supply zone is evidence that sellers are active where you expected them.
How do you use dark cloud cover in the cash market?
Most cash-market swing traders use dark cloud cover at a supply zone to manage a long position: book part of the profit, exit, or move the stop up. Shorting in the cash market is intraday only, so traders who want to hold a short position overnight use futures or options.
- Check the rise and the location at a fresh supply zone.
- Let the red candle close below the green midpoint; until it closes, the pattern does not exist.
- Wait for confirmation: a candle that closes below the red candle's low.
- For a long position: exit, book part of the profit, or tighten the stop. For a short trade: enter just below the confirmation close.
- Place a short trade's stop above the pattern's high or the zone's distal line, whichever is higher, and check that a 1:2 target fits before the next demand zone.
What makes a dark cloud cover stronger or weaker?
| Feature | Stronger | Weaker |
|---|---|---|
| Red close | Well below the midpoint, near the green open | Just below the midpoint |
| Red open | Above the green high | Just above the green close |
| Red lower wick | Short: sellers held the close | Long: buyers pushed back late |
| Volume | Higher on the red candle | Lower on the red candle |
| Location | Inside a fresh supply zone | Mid-range, or just above a fresh demand zone |
| Higher timeframe | Trend or zone pointing down | Strong uptrend against it |
No single feature settles it. In a strong uptrend, one heavy red candle is often absorbed and the rise continues, which is why the confirmation close below the red low matters before acting.
What are common mistakes with dark cloud cover?
- Accepting a shallow close: a red close above the green midpoint is not a dark cloud cover.
- Ignoring the rise: without an advance before it, there is no rally to reverse.
- Selling before the red candle closes: a red candle at 1:00 PM can recover and close above the midpoint by 3:30 PM.
- Holding a cash-market short overnight: cash-market shorts must be squared off the same day.
- Placing a short's stop below the pattern high: the stop belongs above the high, or above the zone's distal line if that is higher.
Frequently asked questions
Is dark cloud cover bullish or bearish?
Bearish. After a rise, a red candle that opens higher and then closes below the midpoint of the previous green body shows sellers taking back most of the last gain. It becomes a usable signal when the next candle closes below the red candle's low, ideally at a fresh supply zone.
What is the difference between dark cloud cover and bearish engulfing?
Both start with a green candle after a rise, followed by a red candle that opens higher. In dark cloud cover the red candle closes below the midpoint of the green body but above the green open. In a bearish engulfing it closes below the green open, so its body covers the whole green body.
Does dark cloud cover need a gap up?
In the classic definition, the red candle opens above the green candle's high. On Indian stock charts a small gap or none is common, so many traders accept a red candle that simply opens above the green close. The close below the green midpoint matters more than the gap.
Can I short a stock on dark cloud cover in the cash market?
Only intraday. In the Indian cash market, short positions must be squared off the same day, so traders who want to hold a short for days use stock futures or options. Most cash-market swing traders use dark cloud cover at a supply zone to exit or protect a long position instead.
Where is the stop loss for a dark cloud cover trade?
For a short trade, just above the pattern's high, which is usually the red candle's high, or above the supply zone's distal line if that is higher. If price closes back above that high, the buyers have pushed through the sellers.
Put this into practice
Work out the numbers before the market moves, then let an alert bring you back to your own plan.
Educational content only. Nothing here is investment advice or a recommendation to buy or sell any security. Chart diagrams use illustrative prices, not market data. Trading involves risk of loss; verify prices independently and apply your own risk process.