What is the Three Black Crows Pattern?
The Three Black Crows Pattern is a bearish reversal pattern that occurs at the end of an uptrend signifying the reverse of such an uptrend. It is made up of three long-bodied consecutive bearish candlesticks with short or no wicks.
Each candlestick opens at a level slightly higher than the close of the previous candlestick and closes at a level lower than the low of the previous candlestick. If the body of the first bearish candlestick of the pattern is below the high of the preceding bullish candlestick, then that makes the resulting Three Black Crows Pattern even a stronger bearish signal.
The Three Black Crows Pattern occurs in markets with high volatility. For example, an event that drives a strong uptrend then gets exhausted and reverses into a downtrend.
That is how to identify the Three Black Crows Pattern.
If you spot it at the peak of an uptrend, just know that a downtrend just started. Prepare to act appropriately because you can already see an available trading opportunity there.
Candlestick patterns on their own, may not be enough in making trading decisions.
The Three Black Crows pattern works best when used together with technical indicators such as the Moving Average Convergence and Divergence (MACD), trend lines, support, and resistance levels.
In this article, we shall discuss the pairing of the Three Black Crows Pattern with the MACD.
For Fixed Time Traders, note that this pattern is best traded on a trade duration 5 to 10 times the chart candlestick time frame.
If you have set your chart candlestick time frame to 1 minute, for example, your trade duration should range between 5 to 10 minutes.
This ensures that you give the price enough time to move freely without the restriction of time, realizing that the price might sometimes breach your entry point but eventually still end as predicted.
Trading the Three Black Crows Pattern paired with MACD on Olymp Trade.
We mentioned that the focus of this article would be trading the Three Black Crows Pattern, used together with the Moving Average Convergence and Divergence (MACD). Let us see how such a combination can be used to generate trading opportunities on Olymp Trade.
Moving Average Convergence and Divergence is a trend following indicator. It consists of a zero line, two moving averages, and a histogram.
Zero line crossovers by the moving averages signal a bullish move if from below upwards and a bearish move if from above downwards.
The crossovers between the fast and slow-moving averages signal price move towards the direction the slow-moving average crossed the fast-moving average towards.
The histogram shows how much momentum the price has at a particular moment.
We mentioned that the Three Black Crows Pattern occurs at the end of an uptrend to signal the end of such a trend as a strong downtrend begins.
With that foreknowledge, we can then proceed to see how the two, MACD and the pattern, are combined to generate tradable signals.
The following quick steps can be applied in trading the Three Black Crows Pattern paired with the MACD on Olymp Trade;
- Identify the Three Black Crows Pattern.
- Confirm the signal with the MACD.
- Enter a Sell position.
- Adjust your Stop Loss.
- Adjust your Take Profit.
1. Identifying the Three Black Crows Pattern.
Identifying the Three Black Crows is simple. We said that the pattern is made up of three long-bodied consecutive bearish candlesticks with short or no wicks.
Each candlestick opens at a level slightly higher than the close of the previous candlestick and closes at a level lower than the low of the previous candlestick.
If the body of the first bearish candlestick of the pattern is below the high of the preceding bullish candlestick, then that makes the resulting Three Black Crows Pattern even a stronger bearish signal.
Once you have spotted this formation, then such is your Three Black Crows pattern. That takes us to the next step.
2. Confirming the Signal with the Moving Average Convergence and Divergence (MACD).
Have you spotted your Three Black Crows? Then having done that may not be enough. You need to go a step further and verify that it will truly yield to your expectation of the price to fall.
This verification will be done by the use of the MACD indicator. We already explained how the indicator works, but if you wish, you can read more about the MACD here.
That said, what you are doing on this step is ensuring that your anticipation for the price to continue falling is in sync with the MACD.
Let one or several of the following MACD conditions be met in order to be sure of a continued fall in the price as predicted by the three black crows;
- Fast MACD moving average crossing over the Slow MACD moving average from above downwards.
- The MACD histogram shows a decrease in readings hinting at decreasing price momentum.
- Both the Fast and Slow MACD moving averages cross over the zero line from above downwards.
- Both the MACD moving averages reached the overbought level and reversed downwards.
3. Entering a Sell Position.
Have any or several of the above MACD conditions been met? Then you can proceed to enter your Sell position.
If none has been met, however, you would rather not go short. It might be a simple pullback as the primary uptrend resumes shortly.
4. Adjusting your Stop Loss.
Place your Stop Loss just above the high of the first candlestick of the Three Black Crows Pattern. If you are trading without Stop Loss orders then you would rather stop and begin using Stop Loss orders. They can save you a big deal on a bad day.
5. Adjusting your Take Profit.
No measurements are going to be made in this. What you do is to identify a major Support level where most price movements tend not to break.
I know this sounds so relative but it is prudent to identify the closest major support area in order to estimate the minimum amount of Profit you can take.
You know the price can always move past that translating into more profits of course.
Wrapping Up on the Three Black Crows Candlestick Pattern.
As we began, we had settled for the Three Black Crows is a bearish reversal pattern. As we went deeper, it became clear that using the candlestick pattern alone may not be enough.
Actually, candlestick patterns on their own may not be enough to make trading decisions, just like a single indicator isn’t.
Therefore, we have realized that combining such a candlestick pattern with the MACD indicator can be such a powerful trading tool. That is what we have just demonstrated above.
In the case where you have been using the three black crows pattern as a lone factor to make decisions, you can now add the MACD indicator.
In the event that you have not been using the three black crows pattern at all, you now understand not only how to use it, but also combine it with an indicator for certain signals.
Go ahead and apply this strategy on your Olymp Trade charts today – it will definitely make a difference.
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