The Dark Cloud Cover pattern is known in Japanese as kabuse, which means 'to get covered' or 'to hang over'. It is a double candlestick pattern that warns of a potential bearish trend reversal, making it a top reversal pattern that appears in an uptrend. It signals a potential weakness in the uptrend and is the antithesis of the Piercing pattern, which is its bullish counterpart. As the Dark Cloud Cover pattern is a bearish trend reversal pattern, it can only be valid if it appears in an uptrend.
The first candlestick in this pattern must be supportive of the uptrend. In other words, it must be a bullish a white candlestick with a large real body. The second candlestick should be a bearish black candlestick that gaps up at the open above the high of the first candlestick, giving an indication of continued bullishness. However, the candlestick reverses and closes well into the real body of the first candlestick, signaling a strong change in sentiment. The pattern is more reliable if the second candlestick closes well below the middle of the real body of the first candlestick. The deeper the penetration of the second candlestick into the real body of the first candlestick, the more significant the reversal pattern becomes. It also becomes more significant if the two candlesticks that form the pattern are Marubozu candlesticks with no upper or lower shadows.
As with most trend reversal patterns, the Dark Cloud Cover pattern becomes more reliable depending on where it appears on the price chart in relation to trend lines, pivot points, and support and resistance lines, etc. A Dark Cloud Cover pattern at or near a trendline or a resistance line can be used as confirmation that the test of the trendline is more likely to fail. The high point of the Dark Cloud Cover pattern can also serve as a resistance line, and a possible location for a stop loss.