Piercing Line

The Piercing Line is a two-candle bullish reversal pattern that sits between the Bullish Engulfing (stronger) and simple reversal candles (weaker). It forms when a bearish candle is followed by a bullish candle that opens with a gap below the previous low and closes above 50% of the bearish candle's body — but not above the bearish candle's open (which would make it an Engulfing).

The key parameter is the penetration depth: the close must be above 50% of the bearish body. A close at 50-60% is a valid but moderate signal. A close at 70-80% is strong. A close above 90% is nearly an Engulfing and carries almost the same weight. The deeper the penetration, the more bearish conviction was erased and the stronger the reversal signal.

The gap down at the open is an essential component on traditional markets (stocks, futures) but is often absent on 24/7 markets like Forex and crypto. In these markets, traders look for a strong visual separation — the bullish candle opens visibly below the bearish candle's close even without a formal gap. The psychological effect is the same: sellers try to push lower but fail, and buyers step in aggressively.

The Piercing Line should always be confirmed by the third candle. Unlike the Bullish Engulfing, which is strong enough to act on immediately, the Piercing Line is a moderate signal that benefits from additional confirmation. A strong bullish third candle with volume transforms the setup into a more reliable three-candle reversal.