The Three Black Crows: A Trader's Guide | TrendSpider Learning Center (2024)

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What are the Three Black Crows?

The Three Black Crows is a bearish reversal pattern used in technical chart analysis. It consists of three consecutive bearish candlesticks with the following properties:

• Each candle opens within the body of the preceding one.
• Each candle closes near or at its low, and lower than the previous one.
• Each candle has a large body with small or no wicks.

Despite its name, the color of the candlesticks can vary based on your chart settings. The main point is that each candle closes lower than it opens, indicating a strong bearish sentiment.

How to Trade the Three Black Crows

1. Pattern Confirmation: Wait until the third bearish candlestick closes to confirm the Three Black Crows pattern.
2. Pullback: After the pattern forms, look for a slight upward pullback. This often happens as traders take profits from their short positions.
3. Entry Point: Consider going short after this pullback if other technical indicators or price action also suggests a bearish trend.
4. Stop-Loss and Take-Profit: Set a stop-loss slightly above the high of the Three Black Crows pattern to manage your risk. The take-profit level could be at a key support level or based on a risk-reward ratio that suits your strategy.

Example scanners based on The Three Black Crows

The Three Black Crows can be used in Scanning the market. To see how exactly they can be used in this way, we provide the following sample. This is a scanner that searches the market for stocks using this pattern.

Trading Tips for the Three Black Crows

1. Context Matters: The Three Black Crows is a powerful pattern, but it shouldn’t be traded in isolation. Always consider the broader market context and other technical indicators.
2. Risk Management: Even a strong pattern like the Three Black Crows can fail. Always use a stop-loss to manage your downside risk.
3. Patience: Wait for the pattern to fully form and for a pullback to occur before entering a trade. Entering too early can result in unnecessary losses.

Example of the Three Black Crows

Suppose we are analyzing a 1-hour chart. We spot a strong uptrend, followed by three consecutive bearish candles that satisfy the criteria of the Three Black Crows. After confirming the pattern upon the close of the third candle and observing a slight pullback, we decide to enter a short position. Our stop-loss is placed just above the high of the Three Black Crows pattern, and we set our take-profit at the next key support level.