Three Black Crows is a powerful bearish candlestick pattern that may predict the reversal of an uptrend. In candlestick charts, this pattern indicates three consecutive days where the prices open within the previous candle’s body and close lower, foretelling a potential downturn.
Key Insights
- Bearish Reversal Indicator: The Three Black Crows pattern signals the end of an uptrend, suggesting that sellers are currently dominating the market.
- Confirmation Tools: Traders often use other technical indicators like the Relative Strength Index (RSI) to confirm the pattern’s predictions.
- Evaluation by Size and Shadow: The size of the three candles and their shadows can provide additional clues about the pattern’s reliability. Longer bodies and shorter shadows make the signal stronger.
- Opposite Signal: The counterpart to Three Black Crows is the Three White Soldiers pattern, which indicates a reversal of a downtrend.
In-Depth Explanation
The Three Black Crows pattern forms when bearish sentiment overtakes bullish momentum across three consecutive trading sessions. Here, the price progressively closes at or near its low, resulting in long-bodied candlesticks with minimal or no shadows.
Example of Three Black Crows
Traders see these sustained bearish sessions as the beginning of a broader downtrend:
- Each session opens slightly higher but closes decisively lower, demonstrating consistent bearish pressure.
- Observers interpret short or nonexistent wicks as signals of strength in the downward movement.
- Prices gradually suggest the market’s new direction is indeed downward.
How to Leverage Three Black Crows Effectively
Traders should use the Three Black Crows pattern as a cue rather than a solitary indicator. This involves seeking confirmation from other tools and indices:
- Long-bodied Candles: These three candlesticks should ideally be long-bodied to confirm a strong bearish sentiment guiding the market.
- Volume Indicators: Use trading volume to validate the pattern. High volume during these bearish sessions can confirm that many traders are actively supporting the downtrend.
Three Black Crows vs. Three White Soldiers
The Three White Soldiers pattern, which also appears in a sequence of three long-bodied candlesticks, unfolds at the end of a downtrend, predicting an upward reversal. Similar factors—body size, absence of shadows, trading volume—also apply for confirmation in this bullish reversal.
Recognizing Pattern Limitations
Overextended moves below previous support lines might flag oversold conditions, detected with indicators like RSI or stochastic oscillators.
- Patterns Completing Resistance at key levels might hint at either a continued downfall or significant consolidation before another move lower.
- Traders ought to reinforce their strategies with additional indicators and verify potential oversold states to manage risks optimally.
Real-World Example: The 2018 GBP/USD Scenario
In May 2018, a Three Black Crows pattern appeared on the GBP/USD weekly chart indicating bearish dominance.
- Steep Bullish Trend Reversal: The existing uptrend showcased bulls’ strength reversing to bearish dominance.
- Minimal Wick: Short wicks on candles confirmed sustained bearish pressures.
Conclusion
The Three Black Crows pattern, when methodically interpreted with additional confirmation tools, enables traders to confidently predict and profit from bearish reversals, refining their entry and exit strategies to mitigate risks and enhance returns.
Related Terms: Technical Indicators, Candlestick Charts, Bearish Reversal, Three White Soldiers.
