Two Crows

Bearish Reversal Pattern
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What is Two Crows Pattern?

Two Crows is a bearish reversal candlestick pattern that appears after an uptrend. It consists of three candles where two bearish candles follow a strong bullish candle, signaling a potential shift from buying pressure to selling dominance. The pattern reflects weakening bullish momentum and the gradual entry of sellers into the market. It is considered more reliable when accompanied by a gap-up opening and increasing selling pressure in subsequent candles.

Structure of the Pattern

The pattern consists of three candles:

  • Candle 1: A strong bullish candle indicating continuation of the uptrend.
  • Candle 2: A bearish candle that opens above the high of the first candle (gap up).
  • Candle 3: Another bearish candle that opens within the body of the second candle and closes within the body of the first candle.
  • The two consecutive bearish candles resemble 'crows' signaling reversal.
Two Crows Structure
Pattern Structure

Key Conditions for Formation

  • The pattern must occur after a clear uptrend.
  • The second candle should gap up from the first candle.
  • The third candle should close within the body of the first candle.
  • There should be consecutive bearish candles after the bullish candle.
  • The pattern should indicate weakening bullish momentum.

Detailed Explanation

The Two Crows pattern signals a weakening of bullish momentum and the beginning of selling pressure. After a strong upward move, the gap up suggests continued bullish sentiment, but the appearance of bearish candles indicates a shift in control.

The third candle closing within the first candle's body confirms that sellers are gaining strength and the uptrend may reverse.

  • Gap up initially suggests bullish continuation.
  • Bearish candles indicate reversal pressure.
  • Closing within first candle confirms weakness.
  • Pattern marks potential trend reversal.
Two Crows Chart Example
Chart Example

Market Psychology

The psychology behind the Two Crows pattern reflects a transition from bullish optimism to bearish control.

  • Buyers dominate initially and push prices higher.
  • Gap up creates expectation of continued rise.
  • Sellers step in and start pushing prices down.
  • Confidence shifts as sellers gain control.

Trade Interpretation

  • Entry: Traders may enter short positions after the third candle closes.
  • Confirmation: Strong bearish follow-through strengthens signal.
  • Stop Loss: Above the high of the pattern.
  • Target: Based on support levels or trend continuation.

Timeframe Relevance (Algo Context)

In a 5-minute timeframe environment:

  • The pattern forms over 3 candles (15 minutes).
  • It becomes active after the third candle closes.
  • It remains relevant for the next few candles.
  • Useful for detecting short-term reversals.

Role of Volume

Volume helps validate the pattern:

  • High volume during bearish candles strengthens signal.
  • Decreasing volume during uptrend indicates weakness.
  • Volume spike confirms selling pressure.

Using Indicators for Confirmation

To improve reliability, traders combine this pattern with indicators:

  • RSI: Look for overbought conditions.
  • MACD: Bearish crossover strengthens confirmation.
  • Volume: Increasing volume supports reversal.

When to Avoid

  • When there is no prior uptrend.
  • When the pattern forms in sideways markets.
  • When bearish candles are weak.
  • During low-volume conditions.

Precautions

  • Always confirm with additional indicators.
  • Avoid trading without confirmation.
  • Use stop loss to manage risk.
  • Be cautious of false breakouts.

Related Patterns

  • Upside Gap Two Crows
  • Three Black Crows
  • Evening Star
  • Bearish Engulfing

Practical Insights

In algorithm-based detection systems:

  • Detect gap up between first and second candle.
  • Identify consecutive bearish candles.
  • Confirm third candle closes within first candle.
  • Validate prior uptrend for accuracy.

Example Scenario

A stock in an uptrend forms a strong bullish candle followed by a gap-up opening. However, selling pressure emerges, forming two consecutive bearish candles. The third candle closes within the range of the first candle, signaling that buyers are losing control and a potential downtrend may begin.

SUMMARY

  • Pattern Type: Bearish Reversal
  • Candles Required: 3
  • Key Signal: Gap up + two bearish candles
  • Best Use Case: After an uptrend
  • Confirmation Needed: Yes
  • Reliability: Medium