How to Use the Three Black Crows Pattern

FXOpen

There are various chart patterns that indicate a potential market reversal. One such example is the three black crows pattern that indicates a potential bearish reversal in the price of various assets. You can find three black crows stock, commodity, and forex patterns. This FXOpen article will help you understand how such a pattern is formed, demonstrating live trading examples and explaining how it can be used to spot trade opportunities in the market.

What Are the Three Black Crows?

The three black crows candlestick pattern is a bearish price action formation that is commonly used by traders to identify the possible reversal of a prior uptrend. It consists of three consecutive long red candlesticks, each with open and close prices lower than the previous ones. Candles can have little or no shadows. The downside pressure over the three consecutive candles suggests that the sellers have taken control of the market and that the price will likely continue falling.

How to Spot the Three Black Crows in the Chart

It can be spotted on a price chart following a prolonged uptrend or a period of consolidation. It includes three consecutive long bearish candlesticks, where the first red candle opens higher than the previous day's close and closes lower. The second candle opens within the real body of the first one, somewhere between its midpoint and close, and also closes below, forming another long red body. Finally, the third candle opens within the real body of the second one, somewhere between its midpoint and closing price, and closes lower, forming the final long red candle. The candlesticks together create a visually striking formation that resembles three crows sitting on a branch.

How to Trade the Three Black Crows Chart Pattern

Traders often use this pattern as an indication to open short positions, with a stop-loss order placed above the pattern's high. However, it is used in conjunction with other technical indicators for better accuracy. For example, it is reflected in the live trading example below, where the overbought RSI indicator also signalled a possible downside reversal, confirming the chart’s validity.

  • Entry

Once the formation is confirmed with the third long red candle, traders can enter a short position below its low.

  • Take Profit

The profit target must be set by measuring the distance from the first candle's high to the third candle's low and projecting it downwards from the entry point. Alternatively, traders can use other technical indicators and significant support levels to determine a suitable profit target. The profit can also be set with regard to the risk-reward ratio, say 1:2 or 1:3.

  • Stop Loss

The theory states that a stop-loss order can be placed above the first or even the third candlestick’s high to limit possible losses. Moreover, it should be based on the trader's risk tolerance and trading strategy.

You can try TickTrader to learn about trading different technical price formations in the live market.

Live Market Example

The above example shows the formation of the three black crows’ pattern on a weekly chart of the EUR/USD pair. When the pattern formed, the relative strength index had just left the overbought zone, confirming a potential trend reversal. A trader could go short after the third long bearish candle at 1.42550 and place a stop loss near the top, i.e., at the high of the first candle at 1.51763. The profit target could be set at the next important support level of 1.23378. It took six months for the price to reach the target level.

Three Black Crows vs Three White Soldiers

The three white soldiers technical pattern is the opposite of the three black crows. It is a bullish reversal setup that traders commonly use to identify the potential end of a prior downtrend and the start of an uptrend. It consists of three consecutive long bullish candlesticks with highs and lows of the candles higher than the previous ones and with little or no wicks. It suggests that the buyers have taken control of the market and that the price will likely continue rising. The candles together create a visually striking formation that resembles three soldiers marching in a bullish direction.

This formation is usually considered a strong bullish signal when it appears after a prolonged downtrend or a period of consolidation, in contrast to the three black crows formation, which indicates a strong potential bearish reversal. Traders often use it as an indication to enter long positions, with a stop-loss order placed near the bottom of the pattern.

Conclusion

Three black crows is an effective tool that can help traders identify a trend reversal. Still, traders don’t rely exclusively on this pattern. They confirm its signals with other technical analysis instruments, including chart patterns and indicators. Once you have practised identifying the black crows on the price chart, you can consider opening an FXOpen account to start your trading journey.

FAQs

What do three black crows indicate?

The 3 black crows’ candlestick formation, after a prolonged uptrend, indicates a potential downside reversal. It means that sellers are taking control, and the price will likely trade downwards.

How do you trade three black crows?

You can trade the 3 black crows pattern by identifying and confirming the chart formation and then entering a short position below the low of the third candle by placing a stop-loss order near the top of the pattern. The profit target can be based on the distance from the first candle's high to the third candle's low and adding the same to the entry point. Besides that, important support levels can also be used to set the targets.

Are three black crows bullish?

No, it is not bullish but rather a bearish reversal pattern formed after a bullish trend. However, it forms a pair with the three white soldiers, which is the bullish pattern formed after a downtrend.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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