Three Black Crows

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Three Black Crows
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Three Black Crows is a pattern used in technical analysis on stock market. Three Black Crows is a bearish reversal signal that leads to actual reversal 79% of the time that is appears. For this rule to apply, you would expect to find the signal at the top of a current uptrend. Upon recognizing it, you would want to take immediate action to close out a long position or to open a short position. The position may involve shares of stock, exchange-traded funds, or options.

The attributes of three black crows are quite specific. It consists of three consecutive sessions. Each session opens within the range of the previous real body and closes lower. Thus, each session starts with a lower high and ends with a lower low.

The pattern is found frequently on stock charts, although perfect placement at the top of an uptrend is not always the case. It may show up once a downtrend has already begun, and acts as confirmation that the uptrend has ended. However, a problem with this pattern is that once it appears, the downtrend may be well under way already, so some price movement has occurred and an opportunity to maximize profits is lost, at least partially[1].

Three Black Crows- rules of recognition

The Three Black Crows is made up of three black candles with consecutively lower closes. This is a top reversal pattern if seen after an extended rally or at a high price area.

Rules of recognition:

  1. An uptrend must be in progress.
  2. This is followed by a trend reversal with the formation of three black candles, each with a lower close.
  3. Each subsequent candle should open within the previous session's black real body, but this overlap is not a rule. An open at or a little lower than the previous session's real body is also valid.
  4. Each of the black candles must close at or near its lows.
  5. Its Japanese name is sanba garasu.

The Three Black Crows is the mirror image of the Three White Soldiers. It forewarns of lower prices and is a sign of weakness ahead. The three black candles imply strong selling by the bears[2].

Three White Soldiers and Three Black Crows

Clarity of signals is a great advantage in candlestick analysis. Among these are two three-day candlestick signals, the three white soldiers and three black crows. Although the patterns are not easily found in strict adherence to the pattern requirements, they are powerful reversals when they do occur in the proper proximity.

Three white soldiers is an exceptionally strong bullish reversal signal and useful when located close to support after a strong downtrend. The proximity for three white soldiers is at very bottom of a downtrend or shortly after the reversal has begun( in which case the pattern confirms the change in direction). For three black crows, the correct proximity is at the very top of an uptrend or shortly after price has begun to turn downward. Both are reversal indicators. Some analysts claim that when these are found in the wrong proximity for reversal they are continuation signals. However, this is not necessarily the case. When these occur during a trend (three white soldiers during an uptrend or three black crows during a downtrend), they are simply coincidences and provide no actionable information[3].

Footnotes

  1. M.C. Thomsett 2014, p.57-58
  2. F.K. Tam 2015, p.148-149
  3. M.C. Thomsett 2019, p.122-123

References

Author: Karolina Morga