The following bearish reversal pattern we will discuss consists of three Japanese candlesticks. It forms at the top of a rally or near a resistance area.

The first candle is a long black candle in the opposite direction of the established trend

This is enough to raise an eyebrow, not to mention a warning for an impending reversal. The second candle is also long and black. Ideally, it opens within the real body of the previous candle. Similarly, the third candle is long and has a black real body.

You see, the three consecutive black candles indicate the decisiveness of the bears to push the prices lower. I am sure you agree with me. Now, it’s an excellent time to list the specifications of the Three Black Crows:

1. The first candle is a long black real body at the top of an uptrend
2. The second candle is also a long black body that opens within the body of the previous candle
3. The third candle is a long black real body that also opens within the body of the previous candle
4. The close price should be near the low or at the low price. Thus,
5. The lower shadow should be very small or not present at all.

Excellent!

What about any potential sell setups? Well, a potential sell order may be placed just below the low of the pattern, below the third candle. As you might have guessed, we need to place a protective stop loss. So far, the stop loss was placed right above the high of the bearish pattern. But don’t you think that is too risky? Too far away from the entry-level. So, perhaps a better idea would be to place a stop loss above the second candle instead.

The choice is yours. See you in a while.