Three Black Crows

The Three Black Crows is a powerful bearish reversal candlestick pattern that appears at the end of an established uptrend. It signals a potentially significant shift in momentum towards a downtrend, serving as a warning sign for market participants.

what is the 3 Black Crows candlestick pattern

Meaning of the Three Black Crows:

The pattern consists of 3 consecutive bearish candles, each closing significantly lower than the previous one, resembling a staircase descending downwards.

Key Characteristics:

• Color: All three candles are bearish (red).
• Body: Each candle has a long body, indicating strong selling pressure.
• Close: Each candle closes near its low, emphasizing the bearishness.
• Open: The second and third candles open below the close of the previous candle
• Volume: The volume typically increases across the three candles, further confirming the selling pressure.

Confirmation Techniques:

While the three black crows candle pattern is a powerful pattern on its own, using additional confirmation techniques can help strengthen its validity and reduce the risk of false signals. Here are some approaches:

Price Action:

• Look for additional bearish candlestick patterns: Following the Three Black Crows, patterns like bearish engulfing or bearish harami can reinforce the selling pressure and increase the probability of a downtrend.
• Observe support levels: If the price fails to hold at a previously established support level after the Three Black Crows pattern, it significantly strengthens the bearish case.

Technical Indicators:

• Relative Strength Index (RSI) and Stochastic Oscillator: If these indicators reach overbought levels before the Three Black Crows appear, it suggests potential exhaustion in the uptrend, supporting the bearish reversal.
• Volume confirmation: A progressive increase in volume across the three bearish candles adds weight to the reversal signal by indicating intensified selling pressure.

Market Context:

• Fundamental analysis: Consider any bearish factors influencing the broader market or the specific asset that could contribute to a reversal.
• Timeframe: The Three Black Crows pattern is generally considered more reliable on higher timeframes, such as daily or weekly charts, where trends are more established.

The most important time to trade

three black crows trading strategy

Once identified and confirmed, the Three Black Crows can be used to inform trading decisions. Here are some entry and exit strategies:

Entry:

• Short position: Place a short order below the low of the third candle to capture the potential downside momentum.
• Trailing stop: Consider using a trailing stop order to automatically lock in profits as the price moves down.

Exit:

• Profit taking: Monitor technical indicators for potential support levels or bearish divergences, signaling potential pauses in the downtrend and opportunities to exit the position.
• Moving averages: Use moving averages to identify potential reversal points.
• Stop-loss: Always place a stop-loss order above the high of the first candle to limit potential losses if the price resumes its uptrend.

Three Black Crows Pattern Trade Example XAUUSD(GOLD)

On December 4th, 2023, I noticed a significant event in the GoldUSD Pair: the formation of the Three Black Crows Candlestick Pattern. This pattern indicated a sharp decline in gold prices, which I observed falling from 2088.724 to 2023.801 on the 4-hour time frame. This was a clear confirmation that XAUUSD was entering a bearish trend.

As a trader, I saw a valuable opportunity during the retracement at 2040.239. It was an ideal moment to execute short trades. The target for taking profits? The next liquidity level, which was at the 1978 pricing level on the XAUUSD chart, also on the 4-hour time frame. see this pattern on tradingview

It’s important to remember that larger time frames often add more confidence to your trades. This scenario was a prime example of how watching the larger trends can lead to profitable trading decisions.

Risk Management:

Even with powerful patterns like the Three Black Crows, success is not guaranteed. Implementing sound risk management principles is crucial for protecting your capital and navigating market uncertainties.

• Start small: Begin by trading with a small percentage of your capital until you gain confidence in identifying and trading the pattern effectively.
• Stop-loss orders: Always use stop-loss orders to limit your potential losses on every trade.
• Discipline: Maintain discipline and stick to your trading plan. Avoid emotional decisions, chasing losses, or overtrading.