What Is The Upside-Gap Two Crows Candlestick Pattern? How to trade with it?

The Upside Gap Two Crows candlestick pattern in technical analysis signals a potential reversal to a bearish trend in the market. But why does it indicate a trend reversal? How should one trade upon spotting this pattern? Let’s explore these questions in the following article.

KEY TAKEAWAY

The Upside Gap Two Crows is a bearish reversal pattern in an uptrend, marked by two small black candlesticks that gap with the first, signaling a potential downtrend.
To identify an Upside Gap Two Crows pattern, it must occur in an uptrend, start with a large bullish candle, followed by two bearish candles with gaps up, where the third candle engulfs the second and closes above the first candle's close.
A trader might use the Upside Gap Two Crows pattern to exit long positions or enter shorts at the third candle's close or upon a drop below its low, as the price usually gaps down afterward.
The Upside Gap Two Crows pattern offers insights into market reversals and clear trade signals but risks false signals, requires confirmation, and lacks precise targets.

WHAT IS UPSIDE-GAP TWO CROWS CANDLESTICK PATTERN?

The Upside Gap Two Crows is a bearish reversal pattern in an uptrend, signaling a potential market shift with three candles:

Day 1: A long bullish candle that continues the existing uptrend, with its closing price higher than its opening price.
Day 2: A smaller bearish candle that gaps up, meaning its opening price is higher than the closing price of Day 1, but it closes lower than its own opening price.
Day 3: Another bearish candle that opens even higher than Day 2 but closes lower than Day 2’s close, while still remaining above Day 1's closing price. This third candle "engulfs" the second one, creating a sense of hesitation in the uptrend.

The formation of this pattern suggests a weakening in the upward momentum and a possible reversal to a bearish trend.

FEATURES OF UPSIDE-GAP TWO CROWS CANDLESTICK PATTERN

There are several important conditions that must be met to identify an Upside Gap Two Crows pattern:

The pattern must appear within a well-defined uptrend, where the market has been consistently rising before the pattern forms.
The first candle is a large bullish one, followed by a smaller bearish candle with a gap up.
The third candle must be a bearish one that gaps up, engulfs the second candle, and closes above the first candle's close.

HOW TO TRADE WITH UPSIDE-GAP TWO CROWS CANDLESTICK PATTERN?

A trader could use the Upside Gap Two Crows pattern to signal an exit from long positions near the close of the third candle or to enter a short position at that time. Alternatively, the trader might wait for confirmation by exiting once the price drops below the low of the third candle. The price typically gaps down after the pattern, so the next trading session open could provide an exit or short entry point.

Before the Upside Gap Two Crows pattern, there may be a similar chart formation that is invalid if the second candle closes within the price range of the first candle (green), and the third candle does not open above the second.

PROS AND CONS OF UPSIDE-GAP TWO CROWS CANDLESTICK PATTERN

Pros:

Insights into Market Reversals: The pattern provides valuable insights into potential shifts in market direction, helping traders identify possible turning points in the trend.
Clear Signals: It offers precise entry and exit points.
Enhanced Trading Strategy: Incorporating this pattern into a broader trading strategy can enhance overall market analysis by combining candlestick patterns with other technical tools.

Cons:

Risk of False Signals: The pattern may generate false signals, especially in volatile or indecisive market conditions, leading to potential misinterpretations of market movements.
Need for Confirmation: To increase reliability, the pattern should be confirmed with additional analysis or other technical indicators. Relying solely on the pattern may not always yield accurate results.
Lack of Precision: The pattern does not offer precise price targets or specific durations for potential reversals, making it challenging to determine exact entry and exit points or the length of the reversal trend.

In summary, the Upside-Gap Two Crows pattern is widely used in crypto information, making it essential to understand. Newcomers might find it challenging, but with the Klarda app, you can access timely tools and support to help you.