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Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
In my book,
Encyclopedia of Candlestick Charts  , pictured on the right,
I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines
in the tests.
The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines,
performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators),
and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy
by clicking on the above link.
The three black crows candlestick is a pattern with definite identification rules or guidelines. Not any three black candles in a downward price trend will qualify. The pattern acts
as a bearish reversal of the upward price trend and the overall performance is outstanding.
A check of the performance over 10 days shows some startling results: Do not trade this if
the breakout is downward. Only upward breakouts are worth considering. If you remove the 10 day restriction, then the worst performance comes from three black crows in a bull market,
regardless of the breakout direction.
Important Results
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Theoretical performance: Bearish reversal
Tested performance: Bearish reversal 78% of the time
Frequency rank: 60
Overall performance rank: 3
Best percentage meeting price target: 36% (bear market, up breakout)
Best average move in 10 days: 13.31% (bear market, up breakout)
Best 10-day performance rank: 2 (bear market, up breakout)
All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.
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 Three Black Crows
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Discussion
The three black crows candlestick acts as a bearish reversal 78% of the time. The reason for such a high number is that a close below the bottom of the candle pattern will mark
it as a bearish reversal, but price has to climb and close above the top of it to score it as a bullish continuation. With price ending near the candle’s low, it is much easier
for a downward breakout than an upward one to occur.
The overall performance rank is 3 and that is due, in part, to the large moves price makes after an upward breakout. In a bear market, for example, the best average move 10 days
after the breakout is a rise of 13.31%. I consider 6% as a good move, so the three black crows double that. However, the result is based on just 66 samples. In fact, instead of the 20,000
candle patterns that I like to see, I found only 2,660 out of over 4.7 million candle lines.
Identification Guidelines
| Characteristic | Discussion |
| Number of candle lines | Three. |
| Price trend leading to the pattern | Upward. |
| Configuration | Look for three tall black candles that appear in an upward price trend. Candles 2 and 3 of the pattern should open within the body of the prior candle, and all
three should close near their lows, making new lows along the way. |
Three Trading Tidbits
If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book
where the tips appear.
- Three black crows candles that appear within a third of the yearly low tend to act as reversals most often -- page 734.
- Select tall candles for the best performance -- page 732-73.
- Look for an upward breakout from the three black crows -- page 734.
Example
The chart shows three black crows circled in red on the daily scale. Price trends upward leading to the start of the candlestick pattern
then three tall black candles appears. The last two candles should open within the body of the prior candle, but that is difficult to see on this chart. Price should close at or near the low of each
black candle and each one should post a lower low, which they do.
Since this candlestick has no breakout yet, I cannot say if this three black crows pattern is a continuation or a reversal. I will say that one setup that works is to find a
three black crows with an upward breakout in an upward price trend.
By that I mean price should be moving higher in a primary trend (longer term), form a three black crows pattern,
and then have price close above the top of the candlestick. Since price is resuming the climb along with the longer term trend, it is the ideal situation, and it is more likely to end in a profit.
-- Thomas Bulkowski
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