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Trend reversal trading strategy “Three Black Crows” is designed mainly for Forex and can be used on all currency pairs on any time frames. Its rules state that:
A trader should place a buy stop order at a high of the signal candle upon a bullish “Three White Soldiers” pattern during a downtrend. A sell stop should be placed at a low of the signal candle upon bearish “Three Black Crows” pattern during an uptrend. The stop loss should be placed at the high/low of the signal candle with 1:2 Risk-to-Reward ratio. To define trend we have used 3 EMAs with 10, 25 and 50 periods.
For more information please refer to https://forextradingstrategies4u.com/three-white-soldiers-three-black-crows-forex-trading-strategy/.
For our test, we have used a Trailing Stop which is launched after a trade has started and is modified each new 1 pip of profit. From our point of view, such approach allows to maximize profit and minimize drawdown. We have run the test for 2010.01.01-2019.06.07 using Control Points modelling on EURUSD-H1, with no leverage, without reinvestment, assuming spread equals 10 ticks, with starting balance 100000. These are the main parameters of financial performance, that may allow you to evaluate whether this strategy worth your attention or not:
|ROI||# of trades||Winning ratio||Max. drawdown|
The following charts may give some possible insights on which filters to apply (time sessions, day of week limitation, trend strength threshold, overbought/oversold conditions, volatility range) to turn this strategy profitable should you decide to use this strategy in your investment portfolio:
1.Most profitable buy trades were opened at a higher value of Stochastic when trading popular trading strategy “Three Black Crows” during 2010 – 2019. Usually Stochastic filter is used with opposite rule: to buy at a lower value of Stochastic and to sell at a higher value.
2. The less the distance between the Upper Band and the price were, the more profitable buy trades were opened, while the less the distance between the lower Band and the price were, the more profitable sell trades were opened, when trading popular trading strategy “Three Black Crows” during 2010 – 2019. Since the probability that a trend will change its direction within Bands is higher and “Three Black Crows” is a trend reversal strategy, such pattern is logical.
3.Most guides say to buy when RSI shows oversold and to sell when RSI shows overbought. However, our analysis of “Three Black Crows” trading strategy during 2010 – 2019 has shown that more profitable buy trades were opened at a higher RSI value.
4. We have found a large number of patterns but despite this “Three Black Crows» strategy is unprofitable on most popular FX symbols, such as EURUSD, GBPUSD, USDJPY, EURGBP, EURJPY, GBPJPY during 2010 – 2019.
We have found a large number of patterns but despite this “Three Black Crows» strategy is unprofitable on most popular FX symbols, such as EURUSD, GBPUSD, USDJPY, EURGBP, EURJPY, GBPJPY during 2010 – 2019.
Our company specializes on automated trading systems and trading indicators development for the most popular trading platforms, such as MetaTrader 4/5, NinjaTrader 7/8 and cTrader.
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