The three black crows candlestick pattern is considered a relatively reliable bearish reversal pattern. Three crows is a term used by stock market analysts to describe a market downturn. It appears on a candlestick chart in the financial markets. It unfolds across three trading sessions, and consists of three long candlesticks that trend downward like a staircase. The pattern indicates a strong price reversal from a bull market to a bear market.[1]

What is the Three Black Crows Candlestick Pattern?

Three black crows is a phrase used to describe a bearish candlestick pattern that may predict the reversal of an uptrend. This pattern forms at the peak of an uptrend and indicates a strong reversal in the stock price. The continuous downward movement highlights the strength of the bears and they are now in charge of the stock.

The black crow pattern consists of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle. Often, traders use this indicator in conjunction with other technical indicators or chart patterns as confirmation of a reversal.

 

How to identify Three Black Crows pattern:

The three black crows is identified as three red (or black) candlesticks in a row where each candle opening is lower than the previous bars open.

Here is a list of the conditions that must be met for the pattern to form:

  • There must be three negative candlesticks
  • All three should close in the lower fourth of the range.
  • The upper wicks should not be very tall

So, for a valid signal, the open price of each candlestick ought to be lower than the last open and the close should be lower than the close of the last. The pattern should form at or near a chart top so that the first bar makes a recent high.

 

What does Bearish Engulfing Patterns tell you?

Three black crows pattern forms during an uptrend, often indicating an end of a bull run in the market. It forms when bears overtake the bulls during three consecutive trading sessions. In short, it is a strong indication of a bearish trend reversal.

After markets have been strong for some time, it is natural for the bulls to loosen their grip and allow the bears to have some fun hence sending prices lower. This pattern tells traders that a bearish trend is on the horizon and prices are expected lower in the upcoming sessions.

Each candle opens within the body of the previous one, though it is not mandatory. The first candle emerges during an uptrend and the subsequent two form during the downtrend.

It can also form near a Doji – an indecisive candlestick formation that illustrates market indecision before a trend reversal. It is also worth mentioning that the pattern can appear in either bearish or bullish trends.

In a bearish trend the three black crows will often appear in bearish rallies or short upswings.

 

Three Black Crows vs. Three White Soldiers

 

The opposite of the three black crows pattern is the three white soldiers pattern, which occurs at the end of a bearish downtrend and predicts a potential reversal higher. This pattern appears as three long-bodied white candlesticks with short, or ideally non-existent, shadows. The open occurs within the previous candlestick’s real body, and the close occurs above the previous candlestick’s close.

Three white soldiers are simply a visual pattern indicating the reversal of a downtrend whereas three black crows indicate the reversal of an uptrend. The same caveats apply to both patterns regarding volume and confirmation from other indicators.

Limitations:

As the three crows pattern makes the prices to fall, traders should be cautioned of the oversold conditions that may lead to consolidation before a further move down of the prices. The best way to assess the oversold nature of a stock or other asset is by looking at technical indicators, such as the relative strength index (RSI), where a reading above 70.0 indicates oversold conditions, or the stochastic oscillator indicator that shows the momentum of movement.

 

Key Takeaways:

  • Three black crows is a bearish candlestick pattern used to predict the reversal of a current uptrend.
  • The size of the three black crows candles and the shadow can be used to judge whether the reversal is at risk of a retracement.
  • The Three Crows pattern is a bearish reversal pattern that consists of three bearish long-bodied candlesticks.
  • The Three Black Crows is a bearish reversal pattern therefore it should be considered only when it appears after an uptrend.
  • One should note that these three candlesticks can be Bearish Marubozu.

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected !!