Upside Gap Two Crows

What is an Upside Gap Two Crows?

The upside gap two crows pattern is a three-day candlestick chart formation that signals a vertical price move might be running out of momentum and could reverse lower. Since the pattern includes three specific candles in a certain order, the pattern isn't exceptionally common.

What Does the Upside Gap Two Crows Tell You?

The upside gap two crows is a bearish reversal signal in technical analysis. The pattern has formed while the following requirements are met.

• Candle 1: A bullish candle that proceeds the uptrend, addressed by a long white (or green) candlestick that demonstrates a closing price well over the open price.
• Candle 2: A bearish candle regardless of the security gapping higher at the open. Thusly, this candle gaps up from the prior candle, and is black with a close below the open.
• Candle 3: A second bearish candle. The candle opens higher than the Candle 2 open, and closes below the Candle 2 close however over the Candle 1 close. This is outwardly addressed by a greater down candle that "engulfs" Candle 2.

There are several important signs of this pattern. To begin with, the pattern must form during an unmistakable uptrend. Second, the main candle must be a large bullish candlestick (white or green) that proceeds an uptrend. This candle must be followed by a bearish candlestick (black or red) that gaps up and has a small real body. Lastly, the third candle must be another bearish candlestick that inundates the subsequent candlestick; it opens over the prior candle and closes below it. Be that as it may, the third candle must in any case close over the primary day's close.

The upside gap two crows signals that the security might be rolling over as its vertical move closes and a downtrend starts. The reasoning for this interpretation is that regardless of two strong opens (on Candle 2 and 3), the bulls have been not able to keep up with up momentum, recommending that sentiment is abandoning bullish to bearish.

The pattern is just three bars, consequently taking a gander at setting and for confirmation is valuable in trading the pattern. In a strong uptrend the pattern may just be a delay before the price proceeds higher. Waiting for confirmation involves waiting at the cost to keep dropping before the pattern is followed up on. For instance, a current long trade is exited provided that the price keeps on dropping below the low of the third candle. A trader could likewise short or sell close to the close of the third candle (no confirmation) setting a stop loss over the high of the third candle if going short.

Illustration of How to Use the Upside Gap Two Crows Pattern

The daily chart of Apple Inc. (APPL) shows an upside gap two crows pattern. The price is rising throughout recent weeks and has a strong green candle followed by a gap higher and down candle, followed by a third down candle that immerses the prior red candle.

A trader could utilize the pattern to signal an exit for long positions, exiting close to the close of the third candle, or going short around then. On the other hand the trader could hang tight for confirmation, exiting once the price drops below the low of the third candle in the pattern. The price gapped down after the pattern, so the following open would have given the next exit (or short entry).

Just prior to the upside gap two crows pattern, there is a chart formation that looks basically the same. It isn't legitimate in light of the fact that the subsequent candle closes inside the price area of the principal candle (green), and the third candle doesn't open over the second.

The Difference Between the Upside Gap Two Crows and the Three Black Crows Pattern

The upside gap two crows pattern signals a potential reversal of an uptrend. Three black crows signal exactly the same thing, yet another way. Three black crows are three long bearish candles that happen following an uptrend. They signal that the uptrend has lost momentum and the bears have assumed control over, pushing the price lower.

Limitations of the Upside Gap Two Crows Candlestick Pattern

This candlestick pattern doesn't demonstrate how far the price could fall after the formation of the pattern, assuming that the price falls. This means different forms of technical analysis or price action analysis are required all together find an exit point for short positions or show how far the price might decline.

The pattern doesn't necessarily bring about a reversal lower. The price could move sideways following the pattern or proceed higher.

Highlights

• A few traders anticipate "confirmation" before acting. This means waiting at the cost to drop below the low of the third candle before selling or shorting.
• The upside gap two crows is a three-candle pattern that signals a slowing of momentum in an uptrend, which could caution of a reversal lower.
• A reversal lower isn't assured. The price could move sideways or rally after the pattern.
• The pattern happens in an uptrend, starting with a large up candle, a gap higher into a down candle, and afterward a larger down candle that overwhelms the prior.