Decoding the Three Black Crows Pattern: A Key to Market Reversals

To help you accurately apply the Three Black Crows candlestick pattern, this article from invest286.com will provide you with the basic knowledge about what the Three Black Crows pattern is, its significance, and what to note when using it… We hope that you will thoroughly understand it and know how to effectively apply it to your trading strategy.

What is the Three Black Crows Pattern?

The Three Black Crows pattern is considered the opposite of the Three White Soldiers pattern.
*** This concept is just a theory that many people pass on, but personally, I disagree. I will explain more about why below ***

Identifying Features of the Three Black Crows Pattern

As mentioned in the concept, the Three Black Crows pattern is easy to identify visually. However, to recognize it most accurately, you need to remember the following key points:

• The pattern must appear in an uptrend or during a price correction phase of a downtrend.
• The three consecutive candles are declining (red), with each closing price lower than the previous one.
• Long candle bodies with short or no shadows are preferable.
• The lengths of the three candles being approximately equal or increasing strengthen the reversal signal.

Significance of the Three Black Crows Pattern

The Three Black Crows pattern is familiar to many traders, but not everyone fully understands its significance.
Regarding the Three Black Crows pattern, you only need to grasp the following points:

• The appearance of the Three Black Crows indicates a strong market fluctuation, weak buying force, and heavy selling by investors, causing the price to drop in three consecutive sessions, leading many to expect a reversal signal.

• The size and length of the candle shadows in the pattern help you determine if it is a true reversal or just a trend pullback (the larger the candle body and smaller the shadows, the higher the reversal probability).

Considerations Regarding the Three Black Crows Pattern

Many traders immediately think, “Ah, this is a price-decreasing candlestick pattern, time to sell or short.”
This is a mistake, as it has deceived many traders. Ask yourself:

Is there any guarantee that a 3-day market decline will definitely be a downtrend? Why couldn’t it increase again?

Here is an example:

As you can see, the Three Black Crows pattern is simply a short-term reversal (and indeed very short), with no guarantee that it will reverse the trend.

The Three Black Crows Pattern and Resistance/Support Levels

You might be thinking about what happens if the Three Black Crows pattern appears at resistance/support levels?
If the Three Black Crows form at a support level, would you really want to sell at that level?

I hope your answer is no, as buying pressure might emerge, pushing prices higher. Why would you want to sell at a support level?

So, is the Three Black Crows pattern really useless? NOT NECESSARILY. If you know how to do the opposite of what you’ve learned, it can yield some interesting results.

The Three Black Crows pattern is a losing pattern

Instead of selling upon detecting the Three Black Crows, consider buying or continuing to hold stocks.

Encountering the Three Black Crows Pattern – Consider Buying

I want to share a tip to go against the crowd: treat the Three Black Crows pattern as a price-increasing signal, indicating potential buying opportunities.
Here’s how to trade it…

• If the price is above the 200MA, look for buying opportunities or continue holding (do not short).
• Wait for a Three Black Crows pattern to enter a valuable area (like support, Trendline, etc).
• Continue buying when the market rejects lower prices (e.g., Hammer, Bullish Engulfing, etc.)

When Does the Three Black Crows Pattern Truly Signal a Trend Reversal?

Still, the Three Black Crows pattern theoretically indicates a downtrend, right? So how do you confirm if it truly signals a trend reversal?

The Nearest Swing Low is Broken

When a previous swing low is broken (the current low is lower than the old low), it’s a sign that the trend is weakening. However, this signal alone is not enough to confirm that an uptrend will break. Therefore, you need to consider the second factor.

A New Pair of Lower High and Lower Low Appears

Do you know, an uptrend means that each new high is higher than the previous one, and each new low is also higher than the previous low.

However, when the nearest swing low is broken, if you see a pair of lower high and lower low as shown below, it’s a strong indicator that a downtrend is about to occur and the uptrend has been broken. This sign indicates that buyers are losing strength, making it difficult for prices to bounce back significantly.

Tip: You can use a higher time frame to find these new highs and lows. Note that if in a larger time frame, the price appears at a resistance level, then the chance of a reversal is very high.

IN SUMMARY:

• The Three Black Crows pattern consists of 3 declining candles over 3 sessions, with short or no candle wicks.

• Unlike what is taught in books, the Three Black Crows pattern IS NOT NECESSARILY A BEARISH REVERSAL SIGNAL. Sometimes it’s an opportunity for you to buy and make a profit.

• The Three Black Crows pattern really only signifies that the price has reversed downward within the time frame the candles appear. Even in the short term, there is no guarantee of this.

• To determine if it’s really a trend reversal, study the market structure carefully, not just the candlestick pattern (and this is probably true for all other Japanese candlestick patterns).

Above is all the knowledge about the Three Black Crows pattern that invest286.com wants to share with you. We hope that through this article, you will be more “alert” and “wise,” avoiding being deceived by these “crows.” If you have any questions or suggestions, please leave a comment to discuss with us. Thank you for reading.