Upside Gap Two Crows

Even if you haven't seen Hitchcock's The BirdsI wouldn't be surprised if the sight of two black crows circling overhead alarmed you. Crows are an omen, some believe—a portent of evil. Both in everyday life and in the world of Japanese candlesticks, they foreshadow bad news on the horizon. We've already discussed Three Black Crows, but even two crows can have a big impact. Enter the Upside Gap Two Crows candlestick pattern. A bearish reversal pattern, the Upside Gap Two Crows builds over three days and signals the start of a downtrend. Without feathers or beaks, how will you spot this pattern and understand its implications? Let's find out . . .

Upside Gap Two Crows

Upside Gap Two Crows

Formation

It would be pretty hard to spot the Upside Gap Two Crows pattern if you didn't know what it looked like, so let's start there:

First, the pattern must form during a clear uptrend. Second, the first candle must be a large bullish candlestick (white or green) that continues an uptrend. Third, this candle must be followed by a bearish candlestick (black or red) that gaps up and has a small real body. Fourth and finally, the third candle must be another bearish candlestick (black or red) that gaps up. This last candle must engulf the second candlestick, meaning that it opens above it and closes below it. However, it must still close above the first day's close.

Meaning

On the first day, the uptrend continues with a long white candlestick, showing the strength of the bulls. The closing price is well above the opening price. On the second day, although the price gaps higher at the open, the bears take control and push the price downward. On the final day, although the price opens higher than it did on the second day, it closes well below it (though still above the close of the first day). This third candlestick engulfs the second candlestick and is represented by a long black body.

So what are the crows trying to tell us? Well, this ominous pattern conveys that the upward movement of the price is ending and a downtrend has commenced. Despite two strong opens with upward gaps (on the second and third days, i.e., the crows), the bulls are struggling to maintain upward momentum. Ultimately, for now, they are expected to fail, shifting the market sentiment from bullish to bearish.

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Rare though it may be, the Upside Gap Two Crows pattern certainly packs a punch. The high opens fail to hold, the market continues to close lower than it opens, and the crows are circling overhead . . . So if you spot these two crows, don't take your eyes off them until you have confirmation, giving you the confidence you need to step forward and make a successful trade. After all, without confirmation, the Upside Gap Two Crows is simply a small pause during the course of an uptrend!

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