Candlestick charts are a powerful tool used to visually represent price movements in financial markets. Japanese candlesticks are filled with various patterns that give signals to traders in the market, and one of these patterns is the "Upside Gap Two Crows" candlestick formation. This article will provide a detailed overview of the "Upside Gap Two Crows" pattern. By focusing on the pattern's definition, formation, meaning, and trading strategies, it is intended to help readers become more informed in their trading decisions by recognizing this pattern.
- Topic: Upside Gap Two Crows
- Type: bearish
- Trend direction: reversal
- Opposite pattern: Downside Gap Two Rabbits
What is the Upside Gap Two Crows Pattern?
The Upside Gap Two Crows is a three-candle bearish reversal pattern that often forms after a strong upward trend. It signals that buying intensity may be subsiding and sellers are starting to dictate the direction. When this pattern appears on a price chart, it often warns that the uptrend could soon turn into a downtrend.
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| Upside Gap Two Crows |
At first glance, the pattern looks like a
small pause in the rally, but experienced traders know it can mark the early
stage of a market shift. Understanding how and why it forms helps you make more
confident trading decisions instead of reacting to every short-term move.
Ever Wonder Why It's Called "Upside Gap Two Crows"?
The name of this pattern might sound
unusual, but it actually describes the structure of the candles quite well.
The term "Upside Gap" refers to the space
(or gap) that forms between the first and second candles. The second candle
opens higher than the previous one, creating a visible gap on the chart. This
shows that buyers initially tried to push prices even higher.
The "Two Crows" part comes from the second
and third candles, both of which are bearish (red or black). They represent "crows" because they darken the optimistic mood of the uptrend, just like crows
arriving as a warning sign. The appearance of two consecutive bearish candles
after an upward gap is a strong hint that the trend might be losing strength.
In short, the name is symbolic: the "gap" highlights the last attempt by buyers to lift the price, and the "two crows" signal that sellers have entered the scene and may soon take charge.
The Formation of the Upside Gap Two Crows Pattern
The Upside Gap Two Crows pattern occurs following an uptrend
and can signal trend reversals. In other words, it is a powerful candlestick pattern that may indicate a shift from a rising trend to a downward tendency.
This pattern consists of three candles:
- First candlestick: The first candle is a large bullish candle that opens above the high of the previous candle. This indicates buyers are in control and hope for further price increases. Immediately after, there is a gap formed above this candle.
- Second candlestick: The second candle opens above the upside gap of the first candle and is a small bearish candle that doesn't touch or exceed the body of the first candle. This indicates a loss of buyer strength and the beginning of sellers taking control.
- Third candlestick: Another bearish candle that is below the high of the second candle but above the close of the first candle. The key here is that both the second and third candles stay within the range of the first candle's body, essentially hovering above the initial momentum. The candles called crows are the second and third red candles.
This pattern appears after an uptrend and usually signals that the trend may be weakening or reversing. The first candle opens with a large upward gap and forms with an upward movement. It is then followed by two small falling candles on the second day. These candles on the second and third days typically move in a way that reverses the previous day's uptrend. This pattern may indicate that the trend is weakening and that a downtrend may be forming.
Trading the Upside Gap Two Crows Pattern
If you're
learning to read candlestick patterns, spotting the Upside Gap Two Crows pattern is already a big win. But recognizing it is only half the job. The
real skill lies in knowing how to trade it safely and profitably. This guide
walks you through every step, from confirmation to entry and risk management,
so you can approach the setup with confidence.
Importance of Confirmation
The Upside Gap Two Crows pattern is a bearish reversal signal, but it only becomes valid once the third candle closes completely. Until that point, the market may still be in a strong uptrend, and the pattern could fail to form properly. Always wait for the full three-candle sequence before making any move. Think of it as waiting for the referee to end a boxing match. You wouldn't celebrate the win before the final round, right? The same logic applies here, let the final candle close before you act.
Planning Your Entry
Once the third candle closes and confirms the setup, the market is telling you something clear: buyers are losing strength, and sellers are stepping in. Most traders look for entry opportunities right below the closing price of the first candle, or at the open of the next candle (the fourth one). Entering around these levels helps reduce unnecessary risk while allowing you to catch the early phase of the downward move. If the market truly shifts direction, you'll be in a strong position without chasing the price after it has already moved.
Managing Risk
Even reliable candlestick setups can fail, so protecting your capital must always come first. A solid stop loss is the foundation of smart trading. In this setup, it should sit just above the highest point of the pattern, usually the top of the second or third candle. This way, if the price suddenly moves back upward, your losses remain limited.
When it
comes to taking profit, don't rely on guessing. Instead, use previous support
levels on the chart as logical targets. Many traders also use trailing stops,
which allow profits to grow while automatically securing gains if the price
reverses.
Practical Tips for Consistent Results
- Always confirm the pattern on higher time frames (such as 4-hour or daily charts) for stronger signals.
- Combine the pattern with volume analysis or a trend indicator to verify selling strength.
- Avoid trading during major economic announcements, since volatility can distort signals.
Trading
successfully isn't about catching every move. It's about being selective,
disciplined, and patient enough to wait for confirmation.
Final Thoughts: The Upside Gap Two Crows formation is one of those candlestick setups that can reveal the early stages of a bearish reversal when used correctly. By waiting for confirmation, entering with a plan, and controlling risk every time, you give yourself the best chance to trade effectively and consistently. Remember, trading doesn't involve predicting the future but focuses on reading the market and responding cleverly when opportunities appear.
- Selling: To sell with this pattern, the close of the third candle needs to be below or it can occur after the confirmation candle formation.
- Stop Loss: As a stop-loss, we can set a stop loss point on the pattern formation. It is important to set a stop loss level to limit possible losses.
- Target: The target level is the price at which you aim to profit from a position. Typically, tools for setting targets can include subsequent support levels, Fibonacci retracement levels, moving averages, and similar methods.
The following chart shows an example of a trade using the
Upside Gap Two Crows candlestick pattern on Apple Inc. stock:
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| Upside Gap Two Crows Pattern in Apple Inc. stock |
Info. The opposite of the "Upside Gap Two Crows"
pattern is called the "Downside Gap Two Rabbits".
Please bear in mind that in the Forex market, technical analysis patterns may sometimes not yield expected outcomes. Patterns like the Upside Gap Two Crows can provide traders and investors with insights into trend changes, but they alone do not guarantee reliability. Combining this pattern with other indicators allows for more robust analysis. When trading Forex, it's crucial to conduct comprehensive analyses rather than relying solely on a single pattern. Market conditions and fundamental analysis factors should also be considered. Additionally, focus on risk management strategies and refrain from trading solely based on patterns.