Three Black Crows

This Japanese candlesticks formation does not occur very often but when it does it is a reversal that occurs after a very strong advance. This pattern is bearish and it indicates the potential reversal of an uptrend and the start of a downtrend. It is typically formed at the top of an uptrend and it consists of three consecutive long-bodied candlesticks that have closed lower than the previous day with each session’s open occurring within the body of the previous candle. There are three requirements in order for this pattern to occur. The first requirement is that the pattern should be formed after a significant uptrend, as described above. Second, there should be three long black (or red) candlesticks with each close to or equal in length. Third, the opening price of each of the three candlesticks must be within the previous candlestick body. (In other words, each day must open within the body of the previous day). Lastly, each day must close near its low.

The reliability of the three black crows candlestick pattern increases with the length of the candlesticks. You must watch however because extremely lengthy candlesticks have the potential to create over-sold conditions. Additionally, the reliability increases with an increase in trading volume, and also with the shortening of the lower shadow of the candles.

What does this pattern indicate is happening in the markets?
This signal indicates overbought conditions in which there has been more selling occurring in a particular stock than the bulls would prefer. This stock has been selling at its highest prices therefore increasing selling pressure. Each day the stock appears as if it wants to regain its former strength as it opens higher than the previous day’s close, however the sellers are able to regain control with the bears causing the stock to drop to a new closing low on the second and third days. Confirmation is important on the fourth day for this pattern to see whether the stock is overextended or if it continues to go much lower.

Japanese candlesticks patterns are very easy to recognize and are the perfect technical analysis tool for investors new to the stock market. It is important to learn about the major candlestick patterns such as the doji candlestick chart, the dark cloud cover, and the hanging man candle, before moving on to the secondary candlestick patterns such as the three black crows pattern. Additionally, many investors choose to combine Japanese candlesticks with other technical analysis indicators such as the moving average. Read about the different types of moving averages investors use as well as the moving average convergence divergence (MACD) indicator, and the moving average crossover.

Through combining these technical analysis tools you are on your way to successful investing.

Please continue your candlestick pattern education and read about the Three Identical Crows.