Three black crows are one of the rarest candlestick patterns, but it’s important to take heed when you see it. Few patterns offer as strong an indicator of a trend reversal as this one. The first day begins in the midst of a bullish market. It usually starts with a gap up from a white candlestick, although this is not necessary.
However, it is soon easy to see the tug of war that is occurring. The first day belies its bullish beginnings and ends with a long black candle body. The two successive days also begin higher than the previous day’s close but end low with long black candlesticks. There are usually no lower wicks or at least very small ones. As you can see from the picture, the appearance is similar to three black crows sitting in a tree, hence the name.
To the untrained eye, it may appear that the bulls are putting up a valiant fight, as the stock opens every day significantly higher than the previous day’s close. However, the buyers are clearly losing strength. The steady stair-step downward is a clear indicator that the upward momentum is losing steam and the sellers are winning. In most cases, the three black crows formation means that the market has already reached its highest point and has nowhere to go but down.
Your Next Move
It’s easy to guess what your next move should be after three long black candlesticks at the tail end of an upturn: sell. In this case, this instinct is likely a sound one. The three black crows candlestick pattern is considered an extremely reliable pattern, but even more so if other market forces are suggesting a downturn. If there are no other indicators, a prudent investor may want to wait for confirmation. However, if other market indicators also suggest a downturn, it’s time to get out, as soon as possible.
Confirmation
Confirmation on the fourth trading day could consist of any further bearish movement. This ideally would consist of a gap down or a black candlestick, the longer the better. Because the three black crows candlestick pattern is such a strong indicator, if confirmation presents itself you must be prepared to move immediately.
Variations
One variation of the three black crows candlestick pattern lies in the opening prices of day two and day three. While the last two days may open at any point within the preceding day’s black body, an opening that is lower than the midpoint strengthens the pattern. Another variation lies within the length of the candlesticks.
In this case, bigger is definitely better.
In many cultures, black crows are harbingers of bad luck. In the case of candlestick analysis, they are more of a warning than a bad sign in and of themselves. Knowing that a market is about to reverse gives traders the opportunity to sell high and maximize their profit, which is never a bad thing. Act quickly, because this is one opportunity that nobody can afford to ignore.
