A Comprehensive Guide to Trading the Three Black Crows Pattern on eToro

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What is a Three Black Crows Pattern?

First of all, the Three Black Crows pattern is a pattern that you’d definitely want to take note of in a chart because it signals a trend reversal from a bullish trend. As this pattern develops, it tells the trader that it is time to sell or short since the price is expected to drop.

From a physical perspective, the Three Black Crows Pattern is made up of three consecutive long bearish candles. The candles develop below each other forming a staircase-like formation, and the opening price of each candle should be close to the closing price of the prior. The Three Black Crows Pattern usually forms at the peak of a bullish trend and this pattern indicates strong selling pressure after the market has reached its peak.

The old candle colors used before were either white or black – white for bullish candles and black for bearish candles. This pattern got its name from the consecutive long black candles. Its name is still being used even the candle colors are changed to red and green – with green being the bullish candle and red as the bearish candle.

As a basic criterion of identifying a Three Black Crows Pattern, it should have three consecutive bearish candles with long bodies. Each of the openings of the next candle should be near the closing price of the previous candle. The tail on the opening price should not be too long or too tall to confirm the strong selling pressure. Lastly, the pattern should form right after a bullish trend or after the price has climbed up.

Example of Three Black Crows Pattern Formation on a Chart

The image below shows a sample form of a Three Black Crows Pattern on the asset – GOLD. From this example, the market is moving in a bullish direction prior to the formation. Right at the end of the uptrend, and at the peak, the pattern formed and it continued towards a reverse trend – or downtrend.

From this example, the three consecutive bearish candles from the peak have considerable sizes. Each of these candles has openings that are near the closing of the prior candles, and the tails or shadows are smaller than the bodies. With these basic criteria of a Three Black Crow pattern present in this case, we can therefore conclude that the market is moving toward a trend reversal. After the pattern formation, we can see that the trend continued to reverse from a bullish trend towards a bearish trend.

Our Final Take on the Three Black Crows Pattern

The Three Black Crows pattern is a trend reversal pattern that is headed toward a bearish market. while it is certainly a pattern that we don’t want to see on a chart especially if we want the market to continue to move upward, it is a pattern that we should be wary of. Whenever it shows up after the peak of an uptrend, it immediately suggests profit taking or reduction of positions. This would be the best time to make a decision whether to lock-in profits or reduce positions.

But then, of course, this is not always the case for all charts. There are also other charts that prove otherwise such as the case of “shake-outs” where the pattern may form after the peak of a bullish market, however will still continue with a bullish trend. Also, there may be cases when the reversal is denied by the market due to heavy buying pressure brought about by various factors, and many others. Knowing the idea and concept of the Three Black Crows pattern would allow the trader to be wary of the looming danger and would allow the trader to make sound decisions – whether to lock-in profits or reduce position size.

To explore how the Three Black Crows pattern is implemented on actual trade, check out the eToro virtual portfolio. This allows traders to trade on the actual market using virtual funds.

Good luck!

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