Three Black Crows & Three White Soldiers

Three Black Crows

As the name suggests, the three black crows candlestick formation consists of three large, consecutive, declining candles. The formation precludes lower prices, especially after a strong advance higher. The three candles should all close near the lows of the bar and ideally each bar should open within the prior sessions real body. If the first candle in a three black crows formation is a gap, then this rule is not necessary. The three black crows pattern requires the trader have patience or even wait for a countertrend rally before looking to take a short position or sell out of longs.

Psychology behind Three Black Crows

Three Black CrowsThree Black CrowsLet's take a look at the psychology behind the three black crow candlestick formation. There are two points that I want to mention here. The presence of the three black crows formation indicates that there has been more substantial selling in this stock than the bulls would have liked. Remember, this formation is preceded by a strong rally and many longs have been trapped in this strong sell-off. Markets do not usually continue straight down without a snap back correction which brought in dip buyers. If the conviction of that buying is not strong enough, you will see new longs and trapped longs from the previous run up start to dump their shares at the same time. This creates a snowball effect and further amplifies the selling.

This is why I have mentioned that this pattern is usually a longer term formation. The stock will already have experienced a severe pullback when the third crow prints. It is usually wise to wait for a bounce before shorting this stock. The bounce will tell you a lot about the resolve of the longs before you place your bets.

Three White Soldiers

Three White SoldiersThree White SoldiersThe three advancing white soldiers is the opposite of the three black crows formation. This formation consists of three consecutive large green candles with higher closes. If the first soldier occurs at a previous support level or area of congestion, this indicates that there may be further strength and gains ahead. You want to see each of these soldiers closing at or near their highs. However, you want to be careful about parabolic moves. I will not trade stocks that have such a strong move as it would be nearly impossible to sustain that pace of acceleration.

Personally, I usually look for a reversal once the third bar of the three white soldiers pattern prints. This allows me the best of both worlds. I can now see a confirmed bullish situation and then time my entry on the pullback using fibonacci retracement levels or other candlestick reversal patterns such as the hammer, etc. Often times, the first and second candle of this formation will provide support on any pullbacks.

Again, as we have discussed many times, the three black crows and three white soldiers formations should be confirmed with other indications such as previous support and resistance and other candlestick formation confluence.

Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
Day Trading Simulator provides the ability to simulate day trading 24 hours a day from anywhere in the world. TradingSim provides tick by tick data for...

Send this article to a friend.

Enter multiple addresses on separate lines or separate them with commas.