Three Black Crows

What is the Three Black Crows trading pattern?

The Three Black Crows candlestick pattern is a series of three downward candles at the top of an uptrend. They indicate that sellers are getting out of the asset rapidly and decisively. This pattern suggests that prices will continue to drop.

Here you can see that the uptrend has ceased, and momentum is building for a downtrend. 

Does the three black crows pattern actually work?

No candle pattern or other technical indicator works all the time. The market is made up of individuals making buy and sell decisions, and those are not always rational. But the Three Black Crows pattern works 78% of the time. 

The reason for this high reliability is that the pattern includes three candlesticks. That means you see what traders call “follow through.” In other words, sellers continue to drive prices downward on subsequent days, indicating that the first down day was not a fluke. 

When you use the Three Black Crows pattern, you are using what is called technical trading. This is different from fundamental trading.

What are the pros and cons of trading the three black crows trading pattern vs. fundamental investing? 

Introduction

While the Three Black Crows is one of the more reliable patterns, it is not infallible. Always remember that traders are people, not robots. They can make surprising decisions. However, this pattern has worked often enough to deserve your attention. Let’s look at the pros and cons of using the Three Black Crows pattern.

The pros

Makes trading more objective

Trading can trigger strong emotions like fear, panic, and greed. When you make emotional decisions, you make mistakes. The Three Black Crows pattern is an unmistakable formation that lets you objectively identify price action problems.

A proven technique

The Three Black Crows pattern has a track record that goes way back. 

Accessible and easy to understand

It is easy to find candlestick charts on almost any charting site. And once you start using candle charts, their visual simplicity makes them easy to comprehend and evaluate.

Helps to provide clarity

When you look at a spreadsheet with prices, you can miss trends. The numbers make trading action seem vague. With candle charts, and the Three Black Crows pattern in particular, a trend reversal becomes clear.

Reflects the psychology of the market

The Three Black Crows pattern is not about cold, indifferent charts. It is about understanding what people are thinking. It tells a story: “Once prices hit a new high, sellers stepped in and took over during the next three days. People are getting out of this asset at a greater rate than people are getting in.”

The cons

Think of the Three Black Crows as a suggestion, not a direction written in stone. There are some pitfalls to watch for.

Weakness as an indicator

The problem with saying the Three Black Crows is reliable 78% of the time is that it is easy to forget that it s wrong 22% of the time. That means you have a nearly 1 in 4 chance of it failing. Always be prepared to abandon a trade if it turns against you.

Tends to be visible only in a short timeframe

This pattern forms over a period of three days. If you are in a position, you could miss the sell signal if you only check your charts once a week. 

Viable trade set-ups can be invalidated by unpredictable news or data releases

A perfectly good Three Black Crows pattern can fail if sudden news hits. Traders are fickle. They could start buying the asset if they think the news is a reason for optimism.

Examples of famous traders who use the Three Black Crows trading pattern

Many traders use the Three Black Crows. They believe in “trade what you see, not what you think.” That is, let the chart tell you what to do.

Here are some well-known traders who use this pattern:

Thomas Bulkowski – Uses candle patterns, including the Three Black Crows formation, to evaluate trading opportunities.

Steve Nison – Worked at E.F. Hutton and introduced candlestick trading to the West. He has used candlesticks-including the Three Black Crows pattern–to decide when to buy and sell.

Jack Schwager – he has made a name for himself as a technical trader. His book Market Wizards talks about using the Three Black Crows.

Sudarshan Sukhani – President of the Association of Technical Analysts, uses the Three White Soldiers. He uses the Three Black Crows.

How many types of three black crows trading patterns are there?

The pattern can vary. For example, the three downward candlesticks may not occur one right after the other. A day or two of upward candles may intervene. However, you must see the Three Black Crows within one week. 

How to read the Three Black Crows trading pattern

You only know an uptrend has reached its peak after it has reversed. Learn to look for a big down day right after a new high. This is a warning to watch. Then look for confirmation of the new downward move in two subsequent days. This is called “confirmation.” Waiting for confirmation increases your chances of being right. 

How to trade three black crows trading pattern

When you look at a completed Three Black Crows pattern, you have the advantage of hindsight. But how should you trade it while it is forming?

Three black crows trading strategy 

Every trade you make should result from a strategy you have thought through long before seeing an opportunity. The Three Black Crows form quickly, so be prepared.

Trade entry

1. Your riskiest trade is to sell just before trading closes on the first day. The next day could take prices right back up. However, if you only have a little profit, getting out at the first sign of trouble could be advantageous for you.
2. You could also sell at the close of the second day. You have some confirmation and a good reason to expect prices to continue dropping. However, two days of trading do not form a reliable pattern. Get out on the second day if you think you are losing too much money.
3. The close of the third day is the least risky trading period. You have proper confirmation as the third “crow” completes its formation. Note: you could still be wrong, but one up day on the fourth candle does not mean the pattern has failed. Expect normal ups and downs as prices zig-zag their way downward. 

ARTWORK HERE

Your strategy must reflect your risk tolerance. 

Trade Exit

Once you have sold, be prepared to change your mind. If prices rise higher than the high of the uptrend, consider buying the asset again.

Trading strategy

Create a strategy and stick to it. Consider, for example, selling part of your position if you see a Three Black Crows pattern developing. Then sell more as the pattern completes. Or, you might choose to sell all of a position if the first day of the pattern is a Bearish Engulfing candlestick.

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Trade management

The Three Black Crows trade is not one you make and then walk away. Watch the aftermath of the pattern to see if it goes against you. 

Educate yourself about the basics

Your overall strategy should include constant learning about candlesticks, technical trading, and engulfing patterns. Here are some suggested resources. 

Books

Trade What You See How to Profit from Pattern Recognition by Larry Pesavento 

Recognizing patterns is the heart of technical trading, and this includes the Three Black Crows pattern. This book helps you identify patterns as they develop and explains how to trade them.

Trading In The Zone by Mark Douglas)

A good source for eliminating bad habits and remaining consistent in your strategy. You learn to trade probabilities and ignore anomalies.

Thomas Bulkowski’s Encyclopedia of Candlestick Charts.

This is a good reference work, so you can look up patterns as needed. 

The Complete Guide to Candlestick Charting by Alan Northcott

The book offers strategies that go with candlestick chart reading.     

Trading courses

Courses on technical trading almost always include sections on the bearish engulfing candle pattern. Avoid courses that promise outlandish returns.

Udemy Technical Trading – Udemy is a reliable source for quality courses. This is a good place to learn about candlestick patterns and broader aspects of technical trading, such as moving averages, trends, and how to use daily volume in your considerations.

Travis Rose – Recommended for beginners. Learn the basics of analyzing patterns.

Bullish Bears – Bullish Bears offers learn-as-you-trade skill building. You do not have to trade actual money because you can make paper trades.

Blogs

Use blogs to stay abreast of current techniques, but also use their archives to learn. Follow the trades a blogger recommends to see how they work out.

Adam H. Grimes – The appeal here is that you can spot patterns in the current marketplace. Grimes walks you through trades.

Top-Down Charts – Learn the relationship between microtrends and macrotrends. The bearish engulfing candle pattern is a microtrend because it occurs on one day. See how it relates to larger trends and market dynamics. 

Marc to Market – This is a Forex blog. Technical trading principles apply to forex just like any other asset.

Forums

Forums can be a source for learning from others, but remember that not every trader giving advice is successful. 

Elite Trader – Elite Trader provides forums on every trading style, including candlestick trading. Look at the general technical forums, then explore niches that appeal to you. 

Morningstar – You get high-quality input from traders here. Still, remember that not every opinion is reliable. 

Newsletters

Look for newsletters from seasoned pros. A good newsletter will give you tips and specific recommendations.

The Technical Indicator–Marketwatch – This newsletter will get you right to the heart of technical chart analysis. You will use current-market set-ups and follow how they play out. 

Morningstar Investor Newsletters – There is such a wide variety of newsletters here that it is recommended that you focus on your narrow interests before branching out. 

Podcasts

Choose a podcast based on the podcasters’ credentials and track record. Make sure the podcast is not merely a sales tool. 

Allstarcharts Podcast on Technical Analysis Radio
Here you learn about current patterns that are developing in the marketplace. 

Charting Wealth’s Daily Stock Trading Review
This podcast follows the live markets and analyzes what trends are likely to develop in the following week. 

YouTube

YouTube is full of people trying to lure you into buying a course. Choose carefully and ensure that the advice makes sense to you. You shouldn’t have to pay to learn the actual trading technique the video has promised.

“Three Black Crows Candlestick Pattern” by Perfect Stock Alert
Has strong visuals and provides tips on some finer points. 

“Three Black Crows-Bearish Candlestick Pattern” by UKspreadbetting Provides an in-depth look at how to read this pattern. 

Webinars

Webinars can be thinly disguised sales pitches. Make sure you learn nuts-and-bolts information.

Online Trading Academy – A reliable source and a thorough walk-through of technical trading.

Technical Analysis–Fidelity – Fidelity’s webinars are high-quality. Choose the series that explains candlestick patterns.

Establish whether the Three Black Crows trading pattern is for you

This pattern is not for everybody. Make sure it fits your trading personality as well as your long-term goals.

What do you have to be prepared to do

Prepare in advance for the mindset you need to trade this pattern. You must be willing to watch charts daily and make quick decisions. If you just got into the position, you must be prepared to take a loss–lose the battle to win the war. Your first duty is capital preservation. A small loss is better than a big disaster. 

Manage your expectations

The Three Black Crows is not a gimmick. It should be part of a slow approach to wealth creation. Use the pattern to gradually improve your skills and grow your money. Take your time. Learn this and other patterns and expect progress but not a get-rich-quick scheme.

Risk management

Never put more than 1-2% of your trading account value into any trade. In the case of the Three Black Crows, that means your original purchase should have been 1-2% of your funds. 

Select a proven strategy with objective rules for entry and exit

Select one of the strategies from this guide and stick to it. Make your rules and follow them. It is okay to adjust and tweak as you go, but at some point, you should settle on one approach and maintain it. 

Keep a trade journal of the trades you take

Traders always seem to think they are doing better than they are. That’s because they tend to pay attention to their winners and avoid thinking about their losers. Review your trades monthly and see if you are making good decisions.

What are the Three Black Crows trading platforms?

Look for a platform that offers candlestick charts. Here are some:

eToro‌ ‌

T‌his‌ ‌platform‌ ‌allows‌ ‌traders‌ ‌to‌ ‌communicate‌ ‌as‌ ‌you‌ ‌do‌ ‌on‌ ‌Twitter‌ ‌and‌ ‌Facebook. You‌ ‌can‌ ‌share‌ ‌trading‌ ‌ideas‌ ‌and‌ ‌experiences‌ ‌with‌ ‌other‌ ‌traders.‌ ‌

Ava‌ ‌Trade‌ ‌

Ava‌ ‌offers‌ ‌platforms‌ ‌for‌ ‌multiple‌ ‌experience‌ ‌levels.‌ ‌ ‌

Naga‌ ‌Markets‌ ‌

This‌ ‌platform‌ ‌is‌ ‌not‌ ‌available‌ ‌in‌ ‌the‌ ‌U.S.‌ ‌naga‌ ‌allows‌ ‌you‌ ‌to‌ ‌copy‌ ‌the‌ ‌best‌ ‌traders‌ ‌on‌ ‌The‌ ‌platform.‌ ‌

MultiBank‌ ‌

This‌ ‌forex‌ ‌and‌ ‌CFD‌ ‌broker‌ ‌makes‌ ‌it‌ ‌easy‌ ‌for‌ ‌traders‌ ‌to‌ ‌get‌ ‌started‌ ‌quickly.‌ ‌

FP‌ ‌Markets‌ ‌

FP‌ ‌uses‌ ‌the‌ ‌Autotrade‌ ‌tool,‌ ‌which‌ ‌allows‌ ‌traders‌ ‌to‌ ‌copy‌ ‌trade.‌ ‌It‌ ‌offers‌ ‌live‌ ‌statistics,‌ ‌along‌ ‌with‌ ‌risk-management‌ ‌systems.‌ ‌

Zulu‌ ‌Trade‌ ‌‌

The‌ platform allows a ‌ ‌low‌ ‌minimum‌ ‌deposit‌. Those‌ ‌trading‌ ‌ for‌ ‌the‌ ‌first‌ ‌time‌ ‌can‌ ‌get‌ ‌started‌ ‌here. ‌Free‌ ‌demo‌ ‌available.‌ ‌ ‌ ‌

5 Tips for Successful use of a three black crows pattern 

1. This pattern is not a buy signal. Many traders say, somewhat flippantly, “I’m buying that stock. It just went on sale.” as if they know it is going right back up. The Three Black Crows pattern strongly indicates that prices will continue to drop. There may be a brief bounce back up, but buyers are getting worn out, and the price will likely continue downward.
2. Don’t be afraid to sell. If you sell your position when you see the Three Black Crows, you may be wrong. But you can always repurchase the position and continue to profit. Suggestion: don’t reinvest your profits. Only invest the original amount you put in. That way, you have locked in your profit.
3. Once you sell, stay out of the position until you see a reversal pattern indicating it may go back up. Study these reversal patterns so you will be ready to jump back in. 
4. Make sure the Three Black Crows are preceded by an uptrend. The longer buyers have been driving the price up, the more likely everyone has bought who is going to. Sellers take over after an extended uptrend.
5. Consider selling a portion of your shares each of the three days of the Three Black Crows. That way, you can lock in profits but still have some money in the asset in case it goes back up.

Three black crows: General terminology

Candlestick, or Candle – This is a graphic representation of the high, low, open, and close of the day.

Bearish Engulfing Candle – A candle “engulfs” another when the body reaches both lower and higher than the previous day’s candle. If the first candle of the Three Black Crows pattern engulfs the previous day’s, it is a Bearish Engulfing Candle.

Uptrend – Prices tend upward for days, weeks, or months. The movement is not always up–there are some down days–but the overall trend moves higher. 

Downtrend – Prices slope downward on a chart for days, weeks, or months. You might expect this price action after seeing the Three Black Crows. 

Gapping Down –This is a sudden drop in a price with no gradual downtrend. Instead, the asset will open lower with no intervening trades. If prices gap down after prices reach a high, that may be a signal to watch for the Three Black Crows pattern.

Trend line – This is an imaginary line you draw the line access the lows for an upward trend and across the highs for a downward trend.

Volume – This is the number of shares exchanged each day. A bearish Three Black Crows pattern with high volume has a better chance of success.

Top – A “top” is the highest point an asset has reached in its current uptrend before turning downward. It is not the highest point the asset has ever reached since it began trading.

Bottom – A bottom is the lowest price followed by an uptrend. It is not the lowest price the asset has ever reached, just the lowest price before an uptrend began.

Conclusion 

Identifying trend reversals is one of the primary skills you must develop as a trader. It is not easy, even for seasoned traders. So give yourself an edge by learning the Three Black Crows pattern. Get some experience with it and begin using it gradually. You may find that you trade more successfully than those who trade based on greed and fear. Let the chart tell you what is going on, not a friend with a hot tip.

FAQs

How reliable is the Three Black Crows pattern?

This pattern successfully predicts a reversal from an uptrend to a downtrend almost 80% of the time. That is a good reason to pay attention to it, but you also have good reason to expect it to fail. There is no “sure thing” in investing. 

Is the Three Black Crows bullish or bearish?

The pattern is bearish, meaning traders expect it to go down in price. 

How do you trade three black crows candlesticks?

If you already own the asset, sell by the third day. If you don’t own it, watch for prices to fall and get in near the bottom of that decline. Look for a bullish reversal pattern as a sign to buy. 

Why is it called the Three Black Crows candlestick pattern?

Candlesticks have some creative names. There was a time when crows were considered an omen of death, and if you saw three black crows around the house, it meant someone was going to die. The Three Black Crows pattern is not that dramatic, but the idea is that dark days are ahead following the appearance of this pattern. 

Is there a particular risk with the three black crows candlestick?

It can be wrong. You might sell out of an excellent stock that just happened to have three down days. If you really think it was a good stock, get back into it when the price exceeds the “top” you thought you saw before.