The ‘Three Black Crows’ is a high credibility bearish reversal pattern consisting of three bearish candlesticks that looks like a descending staircase. In the book ‘Japanese Candlestick Charting Techniques’, Steve Nison also refers to this as a ‘Three Winged Crows’ and colorfully analogizes this to crows sitting atop a tall dead tree, implying that the preceding rally is already dead. As in a descending staircase the highs for each candlestick in the progression should be lower than the previous, the same applies to their lows as well.
Technical Description
1) The pattern should be preceded by a bullish market.
2) Ideally the body of the first black candlestick should be below the high of the preceding candle.
3) The second and third black candlesticks should open inside the body of the preceding and close with a new low.
4) The highs for each of the three candlesticks should be in descending order.
5) None of the black candlesticks are spinning tops and ideally should have similar body size.
Mark’s Perspective
Three Black Crows are more suitable for a position trade or a swing trade in the time frames it appears, i.e. do not expect to go in and out of the market after a single candle or two following the pattern’s formation.
When they appear inside a trading range be sure there is sufficient room for prices to move lower until the congestion floor or that the pattern actually managed to generate a breakout. Otherwise it may be more appropriate not to take the trade. If the candlesticks involved are very long you risk being oversold already. It would be better to wait for prices to pullback inside the pattern before taking action.
Ideally ‘Three Black Crows’ should be preceded by a long uptrend. The black candlesticks will be a suggestion that the trend has matured and is poised to head lower. For better prices, look for shorts from well within the body of the last black candle with stops above the pattern high. The subsequent bear market may be a long drawn out process.