The Three Black Crows trading pattern is a powerful yet straightforward technical analysis tool used by traders to identify potential reversals in a stock's price trend. Read on to find out how to identify it and what it means.
What is the three black crows pattern?
The three black crows are three consecutive large bearish body candles, in which the second and third open within the body of the previous candle and close below it.
For this pattern to have more reliability, the wicks of the candles should be small and both the second and third candles should open below the middle of the previous candle.
- Pattern: Reversal.
- Trend: Bearish.
- Reliability: High.
This pattern is identified at the end of an uptrend and indicates a trend change from a bullish to a bearish one.
How does the three black crows candle pattern work?
The candle pattern of three black crows works as follows:
- We must identify an upward trend and, within it, three consecutive red or bearish candles.
- These bearish red candles must be consecutive with large bodies and no wick (or very small).
- In addition, each of these candles must open within the body of the previous candle, starting with the second, so the first does not count for this requirement.
Here you can see a simple example of how the three black crows pattern works.
The opposite of the three black crows pattern is the three white soldiers pattern:
Here are the main differences:
- The three black crows pattern appears in an upward trend, and three white soldiers appear in a downward trend.
- The three black crows pattern contains three bearish or red candles, and the three white soldiers pattern consists of three bullish or green candles.
- The three black crows pattern indicates a trend change from bullish to bearish, three white soldiers pattern indicates a trend change from bearish to bullish.
What is the psychology behind the three black crows pattern?
This pattern occurs when the bears overcome the bulls during three consecutive trading sessions, and is shown on the charts as three large-bodied bearish candles with short or no shadows or wicks.
The bulls will start the session with the price opening slightly above the previous close, but the price is dragged down by the bears throughout the session.
Finally, and to demonstrate the power of the selling force, during the following sessions, there will also be a large number of sales, starting in the middle of the previous session and ending below.
How to use the three black crows pattern?
The three black crows pattern is a widely used trading tool. It is part of technical analysis and aims to detect possible entry/exit points. To use the three black crows pattern, follow these steps:
- Identify the pattern: The three black crows pattern is formed with three consecutive black candles that close at similar or lower levels than the previous day. This indicates a change in trend and, therefore, a potential entry/exit point, depending on your strategy.
- Determine the direction of the movement: Once the pattern is identified, it is necessary to determine whether the market is going to go down or up as a result of this movement. Therefore, it is necessary to examine the volume.
- Trade based on your strategy
- Short-selling: If your strategy is based on short-selling, this pattern could indicate a potential order as it indicates the beginning of a bearish trend.
- Long positions: This pattern, used with other tools, could help you exit the market before incurring losses.
Example of a three black crows pattern
In the following chart, we can see an example of the three black crows pattern:
As you can notice, before the pattern, the market was in a bullish trend. Then, three red candles appeared and formed the three black crows pattern. After the pattern, the market continues in a downtrend, confirming the pattern.
Pros and cons of using the three black crows pattern
And finally, let's look at the pros and cons of this pattern:
- ✅ Quite reliable for identifying market trends
- ✅ Simplicity (only three candles)
- ✅ Works for multiple assets and timeframes
- ❌ False signals: As with many patterns, you should use additional tools to confirm it.
Learn more about chart analysis
The three black crows pattern consists of three consecutive bearish candles that indicate a trend change from bullish to bearish. Its reliability is high when identified at the end of a bullish trend.
Although it is an easy pattern to detect and applicable to various assets and timeframes, it is essential to use it as confirmation and not as the core component of a trading strategy due to possible false signals.
Is the Three Black Crows pattern always reliable for bearish reversals?
While it's a strong bearish signal, traders should use it alongside other indicators and analysis tools to make informed trading decisions.
What does it mean when each candle opens higher than the previous day's close?
The opening higher than the previous close suggests that bears are in control right from the beginning of each trading session, indicating strong selling pressure.
Can long-term investors use the Three Black Crows pattern for investment decisions?
Long-term investors typically rely more on fundamental analysis but can still consider the Three Black Crows pattern as part of their technical analysis toolkit for timing entry or exit points.