The Three Black Crows is a bearish candlestick pattern that precedes the reversal of strong uptrend.
The name comes from the image of a group of crows sitting together ominously in a tall dead tree.
The Three Black Crows are also sometimes called the “three-winged crows.” Likened to an old Japanese saying, “bad news has wings,” the three black crows signal a security’s price to go down after a mature advance.
Read about the Three Black Crows pattern, examples, and how to trade.
What is a Japanese Candlestick?
The Candlesticks were developed by Munehisa Homma, a Japanese rice trader, in the 18th century. It was then introduced and popularized by Steve Nison after the publication of his book Japanese Candlestick Charting Patterns.
Each candlestick provides a visual representation of a price action for a specific time. It shows the market’s open, high, low, and close prices.
Parts of a Japanese Candlestick
The Japanese candlestick has three main components: the body, the wicks, and the color.
The Body
The body is the thick part of the candlestick. It usually represents the range between the open and close prices. If the close price is higher than the open, the body is typically white or green (bullish). If the close price is lower, the body is black or red (bearish).
Learn more: What are the Three Main Parts of Japanese Candlesticks?
The Wick
The wick are the thin lines that appear above and below the body, indicating the high and low prices during the time period.
The Color
As mentioned, if the close price is higher than the open, the body is typically white or green. But if the close price is lower, the body is black or red. Additionally, white or green bodies show buying pressure, while black or red bodies indicate selling pressure.
Why are there so many candlestick patterns?
Japanese candlesticks have many patterns because they provide a detailed and specific way to analyze market sentiment. These patterns also provide nuanced predictions of future price movements.
Each pattern can represent a different type of market behavior, allowing traders to make more informed decisions.
Three Black Crows Pattern
The Three Black Crows is a phrase used to describe a bearish candlestick pattern on the price chart. The presence of the three black crows can signal a reversal of a strong uptrend. They can be seen as three black/red candlesticks forming a downward cascading line.
The three black crows are a visual pattern and there are no calculations used to determine them. To identify a three black crow pattern, the candlesticks should open on the real body of the candle before it. The lower a succeeding candlestick opens at the real body of the candle before it, the more bearish the market.
Moreover, the thee black crows tend to open with a price higher than the previous close, but the price is pushed to a new level low by the third candle.
By the third candle, traders will now interpret this as the start of a bearish downtrend.
This candlestick pattern is likely more useful for longer-term traders. This is because the pattern is completed on the third black candle which will take time to reach in a market.
Three Black Crows vs. Three White Soldiers
The three white soldiers is the opposite of the three black crows in the sense that this pattern indicates in an uptrend reversal from a strong downtrend.
This pattern appears as three long-bodies white candlesticks with short wicks.
Like the Three Black Crows, it is a visual pattern indicating the reversal of a trend.
Examples of Three Black Crows
Take a look at this price chart for the USD/JPY for February 20, 2024. After a steady trend from September 2023, the three black crows suddenly appeared and caused a major tend reversal.
As you can see, the succeeding candles opened at the end of the preceding candles. This indicates a more bearish trend.
The price dropped sharply from 112.216 (before the three black crows) to 101.164 (after the three black crows).
How to Trade Three Black Crows
As mentioned, the three black crows signal a downward trend reversal.
In order to maximize this opportunity, once you spot the three black crows, you can adjust your entry and stop loss order.
Let’s use the same example as above.
Entry Point
When the three black crows appear, there is a potential shorting opportunity. To short the market using the pattern, you can enter a sell order beneath the low of the third candle.
In this case, you can set the sell order on 109.927.
Since the trend seems to be going down further, we will not be going long on this currency pair.
Stop Loss
To ensure risk management, you can place a stop above the top of the pattern or above the high of the first candle. In our example, it’s 112.216.
Another method you can use to place the stop loss immediately above the third candle’s high, if you want less risk. In this case, you’d be placing a stop loss order on 111.000
Challenge yourself further on CommuniTrade
Keep up to date with trading news, trends, and analysis on CommuniTrade. Ask questions, verify facts, start thought-provoking discussions with fellow traders.
Sign up here.
