Three Black Crows and a Falling Market

The Three Black Crows is a Japanese candlestick trading signal that indicates the end of a bull market. Think of the Three Black Crows as Poe’s raven in triplicate croaking “Nevermore” the prospect of the dying bull market. This is not a common signal but it is useful in clarifying that a strong uptrend in a stock, commodity, or currency has run its course. When using Candlestick charts as an adjunct to Forex trading one will get the impression of three black birds perched successively lower on three trading days as the market falls. The question for Forex traders is commonly this. Are the three black crows and a falling market the beginning of new bear market or simply a correction or adjustment before the bull market continues? The fact is that the correlation is strong between the three black crows and a falling market when trading Forex with candlesticks.

What Are the Three Black Crows?

Using the white and black system in Japanese candlesticks a white candle indicates an up day and a black candle indicates a day in which the traded currency ends the day lower than where it started. The Three Black Crows are three black candles of roughly equal length. They occur in a well defined upward trend. Each of these candles has a top that is below that of the previous day. Thus it opens within the range of the body of the previous candle. Each candle has a bottom that lies below the bottom of the previous day’s candle. Thus the currency closes lower on three successive days.

What is Happening with the Three Black Crows and a Falling Market?

The currency in question has been rising in a well defined bullish trend. Then the currency falls on three successive days. In each case the currency gaps up at the start of the day but finishes lower than on the previous day. This indicates that there are still buyers for the currency, traders who believe that the currency will continue its upward trend after a correction. However, what becomes apparent with the Three Black Crows and a falling market is that market consensus is changing and those who think that the bull market has run its course now dominate trading. Whenever the few remaining bulls bid up the price of the currency the ever more numerous bears sell and take profits as the currency falls again. It is also possible to anticipate Forex market reversal with the Doji so one does not need to wait for the rare Three Black Crows to gain profits.

Making money with the Tree Black Crows and a falling market is standard practice for experienced candlestick traders. However, this is not an especially common candlestick signal. As such traders will need to be aware of the signal and its interpretation in order to recognize it as a significant indicator of a turning market. The Three Black Crows and a falling market are closely linked. However, make sure that there has been a distinct and well defined upward trend preceding this signal. Then be sure that the three “crows” march downward as specified in the signal. If both of these are the case it is very likely that the currency in question will enter a bear market and that trading accordingly will be profitable. Remember that another useful bear market correlation is down trends and the Bearish Engulfing Signal.