How do you spot a Three Black Crow? When a price might be expected to start declining, then a chart pattern known as the Three Black Crows is used to indicate this. It occurs when it forms three straight bearish bars which bear a depiction of falling price. The idea is that each option represented by one of these candles must be lower than the previous one. When trading, use a pattern where each candle opens within the body of the preceding candle and closes near the lower wick of that candle. This goes to show that CONTROL is with the sellers and the price might be close to a downward spiral further. It means that the direction of the market is no longer upward but downward and this is according to the figure above.

Why the Three Black Crows Pattern Matters

The Three Black Crows pattern signals a potential end to rising prices, suggesting a shift to bearish conditions and prompting traders to prepare for a possible price decline. The pattern depicts decreasing price levels because traders are becoming pessimistic which affects the prices of goods.

How to Use the Three Black Crows Pattern in Trading

Charting sometimes brings seemingly false signals. Although the Three Black Cows pattern suggests that a downward trend will likely occur, you should not rely on the trending BAT as the only indicator. For example, analyze the trading volume – the amount of the asset traded at the formation of the pattern. If the volume is increasing, it may indicate that the drop could be deeper. To determine if the market is overextended on the upside and starting to turn down, you can use the Relative Strength Index (RSI).

However, don’t depend on just this pattern only. One has to understand that there is a broader perspective. When the Three Black Crows pattern appears in an uptrend, traders might see it as a minor pullback. For example, if a currency is trending up and the Three Black Crows form, use indicators like RSI and support/resistance to decide if you should short it.

Limitations 

While the Three Black Crows pattern can be useful, it isn’t a one hundred percent certainty. In a strong uptrend, this pattern usually signals a minor pullback rather than a trend reversal. However, it can be misleading in sideways or volatile markets, so it’s important to use it with other analysis tools. Always consider the general market conditions on the stock when using this pattern to make trading decisions.