The Three Black Crows pattern is a bearish candlestick formation that allows traders to identify a potential reversal of a prevailing uptrend. Here, you will learn more about this candlestick pattern and how you can use it as part of your binary options strategy.
Using the Three Black Crows Pattern in Binary Options TradingThis bearish pattern is made up of three long candlesticks that follow each other consecutively. The three candlesticks close at a lower point than the previous trading day and each candlestick opens within the body of the prior candle.
How to identify the three black crow pattern
This pattern is the opposite of the three advancing white soldier pattern. The three black crows pattern is not a strong reversal pattern; it is only a moderate signal of an impending reversal of an uptrend. As such, you should only use it as a reliable pattern when it forms in an established uptrend or rally.
This pattern signals that an established uptrend is weakening and that a downtrend is impending.
Each of the three candlesticks indicates a gradual price decline and does not have long lower wicks. Although the candlesticks should be long and bearish, when they are exceedingly long and demonstrate considerable price declines, it could be an indication that the asset is oversold.
Trading the three black crows pattern
This pattern allows traders to leverage the reversal in a bearish market through short selling. The three candlesticks that make up the pattern are an indication that sellers are in control of the market throughout the duration of the pattern.
Each of the candlesticks causes prices to decline significantly and thus the candlestick closes nears its low point. When sellers are in a strong position and do not face any opposition from buyers, this signals that there is minimal interest in buying the underlying asset. As such, there could be a significant reversal.
One way to trade the three black crow pattern is to take a short sell position with a stop loss placed after the close of the third candle. At this point, you would be intent on selling at the price point at the middle of the third candlestick range.
On the contrary, it is possible for prices to increase slightly after the closing of the third candlestick. However, the prices may not retrace upward significantly to cause a limit order. In this case, you could buy a put option when the prices decline below the low point of the third candlestick.
Place a stop-loss order above the high point of the second candle or alternatively, above the open point of the first candlestick, depending on whether you want to undertake a high risk or low risk trade.
Another strategy to use when trading binary options with this pattern is to first identify an uptrend that is characterized by consecutive ascending candles. Next, wait to spot a reversal, which is characterized by consecutive descending candles. You can then buy a put option after the close of the third candle.
In conclusion, the three black crows can become increasingly aggressive. As mentioned earlier, when the three candles are particularly large, it is often an indication that the bears market is oversold. When this happens, it is recommended that you wait for a confirmation of the impending reversal before entering a trade.