Trading Strategies Revealed – “Three Black Crows” review

Trend reversal trading strategy “Three Black Crows” is designed mainly for Forex and can be used on all currency pairs on any time frames.

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/.

What is “Three Black Crows”

The three black crows candlestick pattern is considered a relatively reliable bearish reversal pattern. Consisting of three consecutive bearish candles at the end of a bullish trend, the three black crows signals a shift of control from the bulls to the bears. In a three black crows pattern, each candle closes lower than the one before, marking an aggressive move by the bears to drive the price back and reverse previous gains by the bulls.

How to trade “Three Black Crows”

A trader should a buy order at upon a bullish “Three White Soldiers” pattern during a downtrend. A sell order should be placed upon bearish “Three Black Crows” pattern during an uptrend. To define trend we have used 3 EMAs with 10, 25 and 50 periods.

Initial back-test

To run a back-test we have coded a complete Three Black Crows trading strategy as a MetaTrader 4 Expert Advisor. During preliminary analysis we have identified that the best time frame for Three Black Crows trading strategy is 1 hour (H1). We have run a back-test of Three Black Crows trading strategy. For our test as a trade exit rule we have used a Trailing Stop of 30 pips 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 2009.01.01-2020.07.05 using Every Tick modelling on EURUSD-H1, using 1:1 leverage, without reinvestment, assuming spread equals 10 ticks. These are the main parameters of Three Black Crows trading strategy performance at its non-optimized state:

ROI# of tradesWinning ratioMax. drawdown
-9.89%509633.03%99.05%

Trading data analysis

After running the initial test of a simple non-filtered strategy we perform a trading data analysis that allows to identify possible filters to use to make the strategy more profitable reducing the drawdown simultaneously.

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:

Optimization

Three Black Crows can be used with other indicators to filter out losing trades and make entry signals more accurate. After analyzing trading data we have found the following insights which have helped us to make the Three Black Crows trading strategy profitable reducing it’s drawdown in 25 times:

  • Trades that were opened at a too low and at a too high values of ADX have appeared to bring more losses when trading “Three Black Crows” trading strategy during 2009 – 2020. ADX shows the power of the current trend. It is more reasonable to take trades at the trend start.
    (ROI increase -9.8% ->-3.4 %, Drawdown reduction 99.05% ->11.96%)
  • The majority of buy trades that were opened at a too low value of Stochastic and the majority of sell trades that were opened at a too high value of Stochastic were losing when trading “Three Black Crows” trading strategy during 2009 – 2020. It is risky to take trades in the overbought and oversold zones.
    (ROI increase -9.8% ->0.7 %, Drawdown reduction 99.05% ->23.39%)
  • The majority of trades that were opened at a boundary state of RVI Signal were losing when trading “Three Black Crows” trading strategy during 2009 – 2020. RVI measures the strength of a trend.  It is preferred to take trades at a more stable market.
    (ROI increase -9.8% -> 4.7%, Drawdown reduction 99.05% ->5.95%)

Optimization results

We have analyzed data received from a test of Three Black Crows trading strategy during 2009 — 2020 years and applied some filters such as ADX, Stochastic and RVI. As a result, the profitability of the strategy has increased from -9.89% up to 5.7% and it’s drawdown has reduced from 99.05% to 3.44% using leverage 1:1.

Post-optimization back-test

Reducing the drawdown has allowed us to increase the leverage that can be used while trading this strategy up to 1:30, which in turn, has resulted in annualized ROI increase up to 298.83%!

Reducing the drawdown has also allowed us to use risk based lot calculation. Below you can see the back-test results using $10,000 initial balance and 7% risk per trade:

ROI# of tradesWinning ratioMax. drawdown
18868.60%45545.71%34.61%

Analyze your trading strategy!

If you have a trading strategy that you want to analyze, optimize and increase its profitability (or even turn it from losing into a profitable Forex trading strategy) – feel free to contact us! Our trading data analysis team will respond to you within 24 hours clarifying all the details needed.

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If you need your own automated trading software designed based on your individual requirements, make a request for a free consultation with our team of professional programmers and find out the cost and terms of your project development.

Disclaimer: Hypothetical or Simulated performance results have certain limitations, unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity.

Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

Past performance is not necessarily indicative of future results. The customer is responsible for using the product at his or her own risk and “Nordman Algorithms” is not responsible for any possible losses caused by use of the product, including but not limited to losses.