Technical Analysis

Two crows on the upward gap

What are two crows on the upside gap?

The Upside Gap Two Crows pattern is a three-day candlestick formation that indicates that price gains may have lost momentum and could reverse lower. This pattern is not very common as it involves three specific candles in a specific order.

key takeaways

  • The two crows upside gap is a three-candlestick pattern that indicates slowing momentum in an uptrend, which could signal a reversal lower.
  • The pattern occurs in an uptrend that begins with a large upward candle, an upward gap turns into a downward candle, and then a larger downward candle engulfs the previous candle.
  • A reversal lower is uncertain. The price may move sideways or rebound after the pattern.
  • Some traders wait for “confirmation” before acting. This means waiting for the price to break below the low of the third candle before selling or going short.

What does the upside gap between the two crows tell you?

An upward gap between two crows is a bearish reversal signal in technical analysis. A pattern is formed when the following requirements are met.

  • Candle 1: A bullish candle that continues the uptrend, represented by a long white (or green) candlestick, indicating the close was well above the open.
  • Candle 2: Bearish candle despite security opening higher. Therefore, this candle gapped from the previous candle, was black, and closed lower than the open.
  • Candle 3: The second bearish candle. The candle opens above the open of candle 2 and closes below the close of candle 2 but above the close of candle 1. This is visually represented by a larger downward candle that “engulfs” candle 2.

There are several important hallmarks of this mode. First, the pattern must form within a clear uptrend. second, The first candle must be a large bullish candlestick (white or green) to continue the uptrend. This candle must be followed by a bearish candlestick (black or red) that gapped and had a smaller body. Finally, the third candle must be another bearish candle that engulfs the second candle; it opens above the previous candle and closes below it. However, the close of the third candle must still be higher than the close of the first day.

An upward gap between two crows indicates that the security may be rolling as the upward move ends and a downtrend begins. The rationale for this explanation is that despite two strong opens (candles 2 and 3), the bulls have been unable to maintain the upward momentum, which suggests that the market sentiment is changing from bullish to bearish.

The pattern has only three bars, so looking at the context and confirmation is useful for trading this pattern. In a strong uptrend, the pattern may just be a pause before prices continue to move higher. Waiting for confirmation requires waiting for the price to continue falling before taking action on the pattern. For example, exit the current long trade only if the price continues to break below the low of the third candle. If going short, the trader can also go short or sell (without confirmation) at the close of the third candle, placing the stop loss above the high of the third candle.

Example of How to Use the Upward Gap Two Crows Pattern

The daily chart for Apple Inc. (APPL) shows an upward gapping two crows pattern. Prices have risen over the past three weeks and have a strong green candle, then a jump and down candle, and then a third down candle that engulfs the previous red candle.

​Transaction View

Traders can use this pattern to signal to exit long positions, exit near the close of the third candle, or go short at that time. Alternatively, traders can wait for confirmation and exit once the price breaks below the low of the third candle in the pattern. The price gapped down after the pattern, so the next open would provide the next exit (or short entry).

Just before the two crows on the upside gap, there is a chart pattern that looks very similar. This is invalid because the second candle closed within the price area of ​​the first candle (green) and the third candle did not open above the second candle.

The difference between two black and three black black patterns in the sky

The two crows pattern on the upside gap indicates a possible reversal of the uptrend. The three black crows send the same signal, but in different ways. The Three Black Crows are three long bearish candles that appear after an uptrend. They indicate that the uptrend has lost steam and that the bears have taken over, pushing prices lower.

Limitations of the Upside Gap Two Ravens Candlestick Pattern

This candlestick pattern does not indicate how far the price will fall after the formation, if in fact the price does fall. This means that other forms of technical analysis or price action analysis are required to find exit points for short positions or to indicate how far prices may fall.

The pattern does not always lead to a reversal lower. Prices may follow the pattern sideways or continue higher.

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