Cloud Cover Top is a classic reversal pattern, especially suitable for judging when the market might weaken.

Basically, it’s composed of two candlesticks. First, a bullish (positive) candle appears, followed immediately by a bearish (negative) candle that drops down sharply. It sounds simple, but there are quite a few nuances.

How to identify it specifically? The first candle is a regular bullish candle, nothing special. The key is the second bearish candle — its opening price must be higher than the previous bullish candle’s closing price, creating an upward price gap. Then, this bearish candle should decline all the way down, with its closing price below the midpoint of the first bullish candle.

Why is it called Cloud Cover Top? You can imagine it like a clear sky suddenly being covered by a dark cloud. The transition from open to close is just like that. The bulls just had some momentum, but then the bears suddenly slam down from a high level. This contrast is like a weather change from sunny to cloudy.

In a bull market, if this pattern appears on the chart, it often indicates that short-term downward pressure may be coming. Of course, the pattern itself is just a signal; it should be combined with other indicators and market conditions for judgment, and not blindly followed 100%.