Introduction

Candlesticks patterns have become a quite popular method of technical analysis. There are around 42 candlestick patterns currently and each one has a different meaning.

It is crucial for every trader to understand each and every candlestick pattern to understand market performance under different conditions.

One such candlestick pattern is “Three Black Crows”. Let’s study this pattern in detail.

What are Three Black Crows?

It is a three candlestick pattern which indicates a bearish reversal pattern. 

This pattern is formed after an uptrend and signals that the market mood has shifted from bullish to bearish.

Crows are considered to bring bad luck and the three black crow pattern is an indication of an upcoming downtrend.

The bears overtake bulls for three consecutive trading sessions in this pattern.

How to identify the “Three Black Crows” pattern?

It consists of three consecutive bearish candlesticks. These long candlesticks open within the body of the previous candle but closes lower than it.

There are some conditions that must be met for the formation of the three black crow pattern:

• There must be three consecutive bearish candlesticks.

• The upper shadow should be very small or non-existent.

• There should be an uptrend prior to this pattern.

• All the candles should open within the body of the previous candle.

The size of the candle and wick also presents valuable information to the traders.

Longer candles imply that there is strong selling pressure whereas shorter candles are a sign of indecision between buyers and sellers.

A longer lower wick indicates that sellers are trying to push the price further down while a long upper wick suggests that bulls are taking control from bears to push the price upwards.

The three black crow pattern implies that the current momentum of the uptrend is weakening and the prices may fall in the future.

Trading Strategy for the “Three Black Crows” pattern

The three black crow pattern should ideally have long bodies and small or no wicks. High volume makes this pattern more accurate.

If the candles have large wicks then it indicates a shift in momentum between buyers and sellers. This is a sign of inconsistency which reduces the accuracy of the pattern.

One good strategy while using this pattern is to check whether the market has moved excessively to the upside.

The relative Strength Index (RSI) is a good indicator to check whether the market is overbought or oversold. If the RSI is above 70, it indicates that the market is overbought.

The formation of three black crows when the RSI is above 70 is a good time to enter into a trade. A profitable exit can be made when the RSI hits below 50.

Conclusion

Traders don’t use any single candlestick pattern exclusively. They combine it with other patterns and technical indicators to improve accuracy.

Patterns like three black crows tend to be more accurate when used on higher timeframes like daily or weekly price charts.

However, it is always best to backtest a strategy before putting your hard-earned money at stake.