white crow in trading
The Three White Crows is a bearish reversal candlestick pattern that typically signals the end of an uptrend and the start of a downtrend. It's made up of three consecutive long-bodied candlesticks that open within the previous candle's body and close near the high of the day. This pattern is considered significant in technical analysis, especially when it appears after a strong upward price movement.

Here's a detailed breakdown of the Three White Crows pattern:

1. Candlestick Characteristics:

Three consecutive bullish (white or green) candles: Each candlestick should have a long body, with small or no wicks (shadows) on either side.

Open within the body of the previous candle: The open price of each candle must be within the body (the area between the open and close) of the previous candle. This signifies that the price is moving upward consistently.

Close near the high of the candle: The closing price should be close to the highest point of each candle, indicating strong bullish momentum.

Body size: Each of the three candles should be long, implying strong buying pressure during each trading session.


2. Formation Context:

The Three White Crows pattern typically forms at the top of an uptrend. This is why it is considered a reversal pattern—it suggests that the market may be reaching its peak and could soon reverse.

The price gradually increases in a controlled manner during the formation of the three white candles, showing persistent buying pressure, but the subsequent reversal is typically sharp and strong.


3. Why It's a Reversal Signal:

After a prolonged bullish trend, the market becomes overheated, and the buying momentum starts to slow down.

The pattern shows that despite the price pushing higher, there is an underlying shift in momentum. The close near the high suggests the buyers are still in control, but a reversal may be imminent as the sellers start to exert pressure.

If there is an increase in volume during the formation of the pattern, it strengthens the potential of a reversal.


4. Confirmation of Reversal:

Volume: An increase in volume during the pattern’s formation indicates that the buyers are still active, but this could reverse with a significant volume of selling in the future. This could happen when the fourth candlestick forms and closes lower.

Next Candlestick: A bearish candle after the Three White Crows (like an engulfing bearish pattern or a gap down) would confirm that the reversal is taking place.


5. False Signals:

As with many candlestick patterns, the Three White Crows can sometimes give false signals. The market might continue upward after the pattern forms if there isn't enough selling pressure or if the reversal isn’t as strong as expected.

To avoid false signals, traders often use additional technical analysis tools, such as moving averages, trendlines, or oscillators, to confirm the potential reversal.


Example:

Bullish Trend: The price has been steadily rising, showing strong buying pressure.

Formation of Three White Crows: The first candlestick opens higher, closes near its high. The second one opens within the body of the first, but again closes near the high. The third candlestick opens within the body of the second and closes near the high.

Possible Reversal: After the third candle, the market may reverse downwards. A bearish candle confirming the trend change would signal that the uptrend has likely ended.


In summary, the Three White Crows pattern is a reliable reversal signal, but it's essential to use it in conjunction with other technical analysis tools to confirm the market's shift from bullish to bearish.