|A bullish piercing line is a reversal candlestick pattern. This pattern consists of two bars. After a prolonged downtrend, the first bar is a long black candle and the second bar is a long white candle whose opening is below the last day's low (that is, gap down opening) but closes above the midpoint of the last day's bar.|
|Here is the rationalization of psychology behind this pattern: Since the market is in a downtrend, the first black bar confirms the bearishness of the current market sentiment. The next day's gap down opening reinforces bearish sentiment. Suddenly, the bulls find this price level attractive. As the demand comes in, price closes above the midpoint of the last day's bar. This signifies a definite psychological shift from a complete bearishness to a hint of bullishness that may lead to a bottom reversal.|
|FIGURE 1: FORD, MONTHLY|
|Graphic provided by: MetaStock.|
|Ford Motor completed the formation of a bullish piercing line candlestick pattern. Ford's recent downtrend started in May 2008. The last two bars form a piercing line pattern (Figure 1, shown in the red box). Aggressive traders can now look to buy Ford above the last bar's high ($5.07), which would serve as confirmation of the trend reversal. Once entered, a stop-loss below the last bar's low ($4.40) or the early July low ($4.30) should be placed. All levels are on closing basis.|
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