DEFINITION of ‘Piercing Pattern’
A technical trading signal that is marked by a closing down day with a good-sized trading range, followed by a trading gap (drop) lower the following day that covers at least half of the upward length of the previous day’s real body (the range between the opening and closing prices), and then closes up for the day. A piercing pattern often signals the end of a small to moderate downward trend.
BREAKING DOWN ‘Piercing Pattern’
A piercing pattern can serve as an indicator that it is time to either buy a stock or close out short positions because the stock may be trending upward soon. It should not, however, be used as a stand-alone indicator, but should be compared against other bullish and bearish indicators.