The term “three black crows” refers to a bearish candlestick pattern that may indicate the conclusion of an upswing. Candlestick graphs display a security’s opening, high, low, and closing prices for the day. The candlestick is white or green for stocks that are rising. They are either black or crimson as they descend.
Three consecutive long-bodied candlesticks that opened within the actual body of the previous candle and closed lower than the previous candle make up the black crow pattern. This indicator is frequently used by traders in conjunction with other technical indicators or chart patterns to confirm reversals.
Why Three Black Crows?
There are no specific mathematics to worry about when spotting three black crows because they form a visual pattern. When bears surpass bulls over the course of three successive trading sessions, the three black crows pattern is formed. The pattern appears as three bearish long-bodied candlesticks with short or no wicks or shadows on the price charts.
The bulls will start the session with the price opening slightly higher than the previous close in a classic appearance of three black crows, but the price is pushed lower during the session. Under pressure from the bears, the price will ultimately close close to the session low.
The shadow cast by this trading action will be very small or nonexistent. The beginning of a negative decline is frequently how traders perceive this downward pressure that has persisted for three sessions.
How to Use Three Black Crows: An Example
The ideal way to use three black crows as a visual pattern is as a cue to look for confirmation from other technical indications. How well-formed the three black crows pattern appears has a significant impact on how much confidence a trader may have in it.
Idealized bearish candlesticks with reasonably long bodies that close at or close to the low price for the period should form the three black crows. Or, to put it another way, the candlesticks should have long, real bodies and short, or no, shadows. If the shadows are lengthening, it can just be a momentary shift in bullish and bearish momentum before the uptrend resumes.
The three black crows design can be improved with volume. The three-day black crow pattern has very high volume during the sessions compared to the uptrend that precedes it, which has a comparatively low volume. In this case, a smaller number of bulls started the uptrend, which was later broken by a higher number of bears.
Naturally, given how markets operate, this might also result in a big number of small bullish traders colliding with a smaller number of high volume negative trades. The amount that each market participant is bringing to the table is more important than the actual number of players.
Three White Soldiers vs Three Black Crows
The three white soldiers pattern, which appears towards the end of a bearish decline and foretells a likely reversal higher, is the reverse of the three black crows pattern. This design resembles three white candlesticks with long bodies that have minimal or no shadows. The previous candlestick’s genuine body is where the open occurs, and its close is where the open occurred.
Three black crows represent the reversal of an uptrend, while three white soldiers represent the reverse of a downtrend. The same warnings regarding volume and corroboration from other indications apply to both patterns.
Utilizing Three Black Crows Has Its Limitations
Traders should be cautious of oversold conditions that could result in consolidation before a further move below if the three black crows pattern involves a sizable move lower. Technical indicators, such the relative strength index (RSI), which indicates oversold circumstances when it reads below 30.0, or the stochastic oscillator indicator, which displays movement momentum, are the best approach to determine whether a stock or other asset is oversold.
Instead of relying solely on the three black crows pattern to signal a breakdown, many traders nowadays look at other chart patterns or technical indicators. It can be interpreted in several ways as a visual pattern, depending on factors like how brief a shadow should be.
A true three black crows pattern will also be mirrored by additional indications. A breakdown from important support levels, like in the case of a three black crows pattern, may independently signal the start of an intermediate-term decline. The likelihood of a profitable trade or exit plan increases with the use of additional patterns and indicators.
Example of Three Black Crows in the Real World
On the GBP/USD weekly price chart in the third week of May 2018, a three black crows pattern occurred, which was a bad omen for the currency pair. Analysts hypothesized that the three black crows pattern meant the pairing will keep trending downward. The three black crows pattern was shown to indicate a continued slump based on an analysis of three factors:
- The bullish market’s relatively steep upward tendency
- Each candle’s low wicks, which show a slight variation between the close and the week’s low
- The longest candle was the third day, even though the candles did not gradually get longer.