Three Black Crows (3 black crows) is a very easy-to-identify 3-candle cluster. These 3 crows appear in an uptrend and bring unhappy signals to the buyers. Knowing the characteristics and understanding of this model will help you master the situation when encountering this model on the chart. In this article, we will introduce you to the Three Black Crows model and trading strategy with them.
What are the Three Black Crows?
Three Black Crows (3 black crows) are a cluster of 3 consecutive falling candles that appear after an uptrend, giving a reversal forecast. This is the opposite pattern Three Soldiers Pattern.
Features of Three Black Crows
For the forex market, the Three Black Crows pattern is identified based on the following characteristics:
- Appear in an uptrend or rebound in downtrend.
- The 3 candles in the pattern must be bearish and have long, short shadows.
- The opening price of the back candle must be above or equal to the close of the previous candle.
- The model shows a trend reversal signal from up to down
Three Black Crows are visual models so they are easy to identify with the naked eye.
One point to note is that the original Three Black Crows pattern requires the opening price of the back candle to be above the previous close, which is the gap. However, with high liquidity market such as forex, the opening price in the next session is usually the closing price of the previous session, except for the last days of the week or when there is strong news. So here, we don't need a gap opening pattern when opening.
You should also pay attention to the length of the candles, they should be approximately the same length or increasing. If the first 2 candles have the same length but the 3rd candle has a lower body, it shows a weak downward force and lower the reliability of the pattern.
Psychological evolution of the Three Black Crows model
After a period of active control, the buyers have gradually weakened while the sellers increased. The continuous downward movement for 3 consecutive sessions showed that the strength of the sellers could not be underestimated. Negative market sentiment is pushing prices down, and this strong reversal confirms that the upward momentum has weakened.
Actual example of the Three Black Crows model
Below is an example on the chart of AUDUSD H1 chart. After a sharp rally, AUDUSD faced selling pressure for three consecutive sessions, creating a Three Black Crows pattern with fairly long candlesticks. However, as you can see in the illustration, the pattern is completed right at the support (line A). The market went up to retest the old peak but failed and dropped. The uptrend of AUDUSD then weakened.
Not every crow is capable of restraining the cows and the bottom is an example. A Three Black Crows pattern has been created on the USDJPY H1 chart. Here you can see that the first two candles are of equal length, but the third has a smaller body, indicating that the signal given from the pattern is not too strong and the price continues to rise thereafter.
Instructions to trade with the Three Black Crows model
When the Three Black Crows pattern is created at the resistance or oversold zone, we can enter a sell order.
Entry points with Three Black Crows pattern
As further confirmation is required, you should not enter the command as soon as the model is complete. Instead, place a pending sell order a few pips below the bottom of the third candle.
Below is an illustrative example, the blue downward arrow marks the Three Black Crows candle pattern. If you rush into the sell order as soon as the third candle finishes, it is likely to hit a stop loss because the price then goes up a beat before turning down to real reversal.
Meanwhile, if you place a pending order, your order will not match when the price goes up and will avoid a bad trade. With pending orders, the position is only opened after the price drops.
How to set a stop loss (take loss) and take profit (Three Black Crows)
For the Three Black Crows pattern, the stop should be placed just above the top of the third candle, the stop loss will be quite short. In some cases of short-term market noise, prices may go up and cut losses before turning down sharply. However, always set a stop loss because you always have the opportunity to observe the market and enter the order to continue after the stop loss is touched. In case you do not have enough time to follow the market, you can extend the stop loss to the previous peaks, but still have to ensure a reasonable risk / reward ratio.
Meanwhile, profit-taking points will be placed in the old bottom areas below.
We have introduced you to the Three Black Crows candlestick pattern. This pattern appears in an uptrend and indicates that sellers have controlled the market for three consecutive trading sessions. With the wise strategies and risk management as shown in the article, you can take advantage of the power of models like this. Good luck!
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Author: Tin Nguyen
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