The three black crows candlestick pattern is considered a relatively reliable bearish reversal pattern. Consisting of three consecutive bearish candles at the end of a bullish trend, the three black crows signals a shift of control from the bulls to the bears.
How a Three Black Crows Pattern Is Interpreted
In a three black crows pattern, each candle closes lower than the one before, marking an aggressive move by the bears to drive the price back and reverse previous gains by the bulls. Though the pattern may open with a gap down, the second and third candles open within the body of the candles preceding them. In addition, each candle has a very short lower shadow—ideally no shadow at all—indicating bears are able to keep price near the low of the session.
All three candles should have large bodies of roughly the same size. This confirms the strength of the bearish push as they force price through a wide range without relinquishing any ground to the bulls.
When Does the Three Black Crows Pattern Appear?
The bearish three black crow pattern most often occurs at the end of a bullish trend. However, like its bullish counterpart, the three white soldiers, it can also occur after a period of price consolidation. While it is still considered a signal of upcoming bearish action, it is not as strong a signal as a pattern that emerges after a strong uptrend.
It is, however, possible for this pattern to be too aggressive. Candles that are excessively large may indicate the bears have overstretched themselves, pushing the security into oversold territory. In this situation, the bears should be wary that the reversal does not become a retracement as the bulls take advantage of their depleted momentum.