In the world of candlestick charting, patterns provide traders with insights into potential market movements. One of the most powerful bearish reversal patterns is the Three Black Crows. This pattern is widely recognized for its ability to signal a potential shift from an uptrend to a downtrend, giving traders an early indication to exit long positions or initiate shorts.
In this post, we’ll explore:
- What the Three Black Crows pattern is
- The psychology behind the pattern
- How to identify it
- Practical strategies to trade the pattern
- Real-world examples and backtesting insights
🔍 What is the Three Black Crows Pattern?
The Three Black Crows is a bearish candlestick pattern that consists of three consecutive long-bodied red (or black) candles, each closing progressively lower. It typically appears after an uptrend or a period of bullish momentum, signaling that the tide is turning in favor of the bears.
✅ Key Characteristics:
- Three bearish candlesticks in a row
- Each candle opens within the body of the previous one
- Each closes near its low
- Minimal or no lower shadows (wicks), indicating strong selling pressure
🧠 Psychology Behind the Pattern
The Three Black Crows represent a gradual takeover by sellers:
- First Candle: Shows initial signs of selling pressure, possibly overlooked as profit booking.
- Second Candle: Bears follow through, reinforcing that the bulls are losing control.
- Third Candle: Confirms dominance by sellers, likely triggering panic exits by bulls and attracting short sellers.
🕵️ How to Identify the Pattern
Conditions for a valid pattern:
- Appears after a clear uptrend
- Candles are long and bearish (not doji or indecisive)
- Each closes lower than the previous
- Volume increases on each down candle (optional but strengthens the signal)
💡 Tip: Use a longer time frame (daily or weekly) to avoid false positives.
📈 Strategies to Trade the Three Black Crows Pattern
Let’s break down multiple strategies ranging from conservative to aggressive.
🔸 1. Classic Reversal Strategy
Objective: Enter a short position after the third candle confirms the pattern.
Steps:
- Wait for the Three Black Crows pattern to complete.
- Enter short at the open of the next candle.
- Set stop loss above the high of the first crow.
- Target previous support zones or Fibonacci retracements.
Example:
Imagine stock XYZ rallies to ₹120, then prints three bearish candles:
- Day 1 closes at ₹116
- Day 2 closes at ₹111
- Day 3 closes at ₹106
Enter short at ₹105.50, stop loss at ₹121, target ₹95.
🔸 2. Pullback Entry Strategy (Conservative)
Objective: Avoid false breakdowns by entering after a pullback.
Steps:
- Wait for the Three Black Crows to complete.
- Let the price retrace (pullback) 38.2% or 50% of the move.
- Enter short when price resumes downward momentum (bearish engulfing or breakdown).
- Place stop above the retracement high.
Advantage: Reduces whipsaws and improves risk-reward.
🔸 3. Volume Confirmation Strategy
Objective: Use volume to validate the pattern’s strength.
Steps:
- Confirm that each red candle has rising volume.
- Combine this with momentum indicators like RSI or MACD turning bearish.
- Enter short on the breakdown of the third candle’s low.
- Use tight stop losses and scale out profits.
🔸 4. Trendline Breakdown + Three Black Crows
Objective: Combine pattern with trendline support break for higher conviction.
Steps:
- Draw a trendline along swing lows of an uptrend.
- If Three Black Crows form near this trendline and it breaks, enter short.
- Use the trendline as stop-loss reference.
- Ride the downtrend till the next major support or moving average.
🔸 5. Three Black Crows + RSI Divergence
Objective: Spot overbought conditions using RSI.
Steps:
- If RSI is above 70 and starts declining along with the Three Black Crows pattern, it confirms reversal.
- Short at RSI breakdown of 60.
- Place stop-loss above the first crow’s high.
- Use RSI 30 as an exit or partial profit-taking level.
🔸 6. Options Strategy: Bear Put Spread
Objective: Reduce risk with limited loss options strategy.
Steps:
- Buy a put option at-the-money (ATM).
- Sell a put option out-of-the-money (OTM) below a support level.
- Enter the spread after the third candle completes.
- Ideal for sideways to bearish markets with volatility.
🔸 7. Three Black Crows in Intraday Trading
Though more effective on daily/weekly charts, intraday traders can also benefit:
- Use 15-min or 30-min timeframes near resistance zones.
- Enter short after the pattern forms and aligns with VWAP or 200 EMA rejection.
- Quick scalping strategy for day traders with 1:2 or 1:3 risk-reward.
⚠️ Common Mistakes to Avoid
- Trading the pattern in a sideways market
- Ignoring volume or trend context
- Using it without confirmation (support break, indicator divergence)
- Assuming it will always result in a large downtrend
📊 Real-World Examples
Here are some historical instances of Three Black Crows:
| Stock | Date (Approx) | Pattern Observed | Outcome |
|---|---|---|---|
| Reliance Industries | Jan 2023 | Near ₹2600 peak | Dropped 8% in next 10 days |
| Nifty 50 Index | Dec 2021 | After new highs | Corrected over 600 points |
| Tesla (TSLA) | Nov 2022 | Post earnings | Sharp selloff followed |
Note: Always backtest on your preferred stocks or indices for validation.
📌 Conclusion
The Three Black Crows is a powerful signal for bearish reversals—but like all candlestick patterns, it works best in combination with trend analysis, volume, and confirmation indicators. When used with proper risk management, it can offer high-probability entries in swing and positional trading.
🔐 Key Takeaway: Don’t trade the pattern in isolation. Combine with broader market context, support/resistance zones, and confirmations to improve your edge.
💬 Got questions or want me to break down a live chart example? Drop a comment or message me directly. Happy trading!