The three black crows pattern resembles three crows looking down from their perch, hence their name. This pattern is one of the secondary candlestick patterns because it does not appear as frequently as any of the 12 major signals. The three black crows pattern occurs after a strong uptrend and it indicates that the crows are looking down or in other words that lower prices are to come. It is the opposite of the three white soldiers signal which will be reviewed in future blogs.
Criteria
- Three long black or red bodies which are all close to or equal in length
- The prior trend is up
- Each day opens within the body of the previous day
- Each day closes near its low
Pattern Psychology for Three Black Crows Pattern
A long black or red candle forms after an up-trend and this up-trend has reached levels where the sellers have now started to step in. The first long black or red candle body is followed by two more long black or red candles and each candle opened in the previous day’s body. This indicates that buying was occurring early each day but that the bears continued to force the prices down by the end of each day. Consistent selling provides for a stronger potential for a downtrend to occur rather than a rapidly overselling period.
One of the biggest misconceptions of investors is that prices move based upon fundamental reasons when in fact prices move based upon the “perception” of fundamental reasons. The Japanese Rice traders discovered this many centuries ago. Why do prices go down when good news is announced? The answer is that the anticipation of that good news was already built into the stock price.
The investment psychology incorporated into candlestick signals makes it easier to understand what is going on in an investor’s mind. The signals were created through hundreds of years of visual analysis and interpretation by successful Japanese Rice traders.
The secondary signals are titled as such because they do not appear as frequently as the 12 major signals. That does not negate the effectiveness of these signals for identifying reversals. Be aware of the implications of these signals and it will provide you with additional opportunities during the course of your investment decisions.
Continue your candlestick analysis education and read more about the major and secondary candlestick patterns.
