Identical Three Crows

The Identical Three Crows candlestick pattern is a powerful bearish reversal signal that often marks the transition from bullish to bearish sentiment in financial markets. This article explores its structure, psychology, practical use, and code implementation for traders and analysts.

Introduction

The Identical Three Crows pattern is a bearish candlestick formation that signals a potential reversal from an uptrend to a downtrend. Originating from Japanese candlestick charting techniques developed in the 18th century, this pattern has become a staple in modern technical analysis. Its importance lies in its ability to highlight shifts in market sentiment, providing traders with actionable insights for stocks, forex, cryptocurrencies, and commodities.

Historically, candlestick charting was pioneered by Japanese rice traders, most notably Munehisa Homma. Over centuries, these visual tools evolved, and patterns like the Identical Three Crows gained recognition for their predictive power. Today, traders worldwide rely on such patterns to anticipate price movements and manage risk.

Pattern Structure and Formation

The Identical Three Crows pattern consists of three consecutive long-bodied bearish candles. Each candle opens within the previous candle's real body and closes lower, forming a staircase of declining closes. The anatomy of each candle includes:

• Open: Near the previous candle's close
• Close: Significantly lower than the open
• High/Low: Lower highs and lower lows with minimal upper wicks

While the classic pattern uses three candles, variations may include slight differences in body size or minor upper shadows. The color is crucial: all three candles must be bearish (typically red or black). Single-candle reversals lack the reliability of this multi-candle formation, making the Identical Three Crows a robust signal.

Step-by-Step Breakdown

1. Uptrend is established.
2. First bearish candle forms, closing near its low.
3. Second bearish candle opens within the first's body, closes lower.
4. Third bearish candle repeats the process, confirming the reversal.

Psychology Behind the Pattern

The Identical Three Crows pattern reflects a dramatic shift in market psychology. During its formation, bullish traders begin to lose confidence as sellers dominate. Retail traders may hesitate, hoping for a rebound, while institutional traders recognize the pattern's significance and increase selling pressure. Emotions such as fear and uncertainty intensify, fueling the downward momentum.

Institutional traders often use this pattern to trigger stop-losses and accelerate reversals. Retail traders, caught off guard, may exit positions in panic, further amplifying the move.

Types & Variations

The Identical Three Crows belongs to the bearish reversal family, closely related to patterns like the Three Black Crows and Evening Star. Strong signals feature long bodies and minimal wicks, while weak signals may have smaller bodies or significant lower shadows. False signals can occur in choppy markets or after extended downtrends, leading to bear traps.

• Strong Signal: Large bodies, closes near lows, minimal wicks
• Weak Signal: Smaller bodies, longer lower shadows
• False Signal: Appears in oversold conditions or without prior uptrend

Chart Examples

In an uptrend, the Identical Three Crows marks the exhaustion of buyers and the emergence of sellers. On a daily chart, this pattern may signal a multi-day reversal in stocks like Apple or Tesla. In forex, it can appear on a 15-minute chart during a news-driven rally, quickly reversing gains. In crypto, the pattern often precedes sharp corrections after parabolic moves. On weekly commodity charts, it may indicate the end of a prolonged bull market.

Smaller timeframes (1m, 15m) show the pattern forming rapidly, while daily and weekly charts offer more reliable signals. Always consider the broader trend and volume context.

Practical Applications

Traders use the Identical Three Crows to time entries and exits. A common strategy is to enter a short position after the third candle closes, placing a stop-loss above the first candle's high. Risk management is crucial, as false signals can occur. Combining the pattern with indicators like RSI or moving averages enhances reliability.

• Entry: After third candle closes
• Stop Loss: Above first candle's high
• Take Profit: At key support or Fibonacci levels
• Confirmation: Use volume, RSI, or MACD

Step-by-Step Example

1. Identify uptrend and pattern formation
2. Wait for third candle to close
3. Enter short position
4. Set stop-loss and target
5. Monitor for confirmation signals

Backtesting & Reliability

Backtesting reveals that the Identical Three Crows has a higher success rate in stocks and commodities than in forex or crypto, where volatility can produce false signals. Institutions may use the pattern as part of broader quant strategies, combining it with order flow and volume analysis. Common pitfalls include overfitting, ignoring trend context, and failing to account for market regime changes.

Reliable backtesting requires large sample sizes and consideration of slippage, spreads, and execution delays.

Advanced Insights

Algorithmic traders program the Identical Three Crows into automated systems, using strict criteria for body size and wick length. Machine learning models can recognize the pattern across thousands of charts, improving detection accuracy. In the context of Wyckoff and Smart Money Concepts, the pattern often marks distribution phases and institutional selling.

Advanced traders may combine the pattern with volume profile, order book data, or sentiment analysis for deeper insights.

Case Studies

Historical Example: 2008 Financial Crisis

During the 2008 stock market crash, the Identical Three Crows appeared on major indices like the S&P 500, signaling the start of prolonged downtrends. Traders who recognized the pattern early were able to capitalize on the reversal.

Recent Crypto Example: Bitcoin 2021

In May 2021, Bitcoin formed an Identical Three Crows pattern on the daily chart, preceding a sharp correction from $60,000 to $30,000. This case highlights the pattern's relevance in volatile markets.

Commodity Example: Gold

On the weekly gold chart, the pattern marked the end of a multi-year rally in 2012, leading to a significant retracement.

Comparison Table

Practical Guide for Traders

Step-by-Step Checklist

• Confirm prior uptrend
• Identify three consecutive bearish candles
• Check for minimal upper wicks and large bodies
• Wait for third candle to close
• Use confirmation indicators
• Set stop-loss and target
• Review risk/reward ratio

Risk/Reward Example

Suppose you short a stock at $100 after the pattern forms, with a stop-loss at $105 and a target at $90. The risk is $5 per share, and the reward is $10, yielding a 2:1 ratio.

Common Mistakes

• Trading without confirmation
• Ignoring broader market context
• Setting tight stop-losses in volatile markets
• Overleveraging positions

Code example

Below are code examples for detecting the Identical Three Crows pattern in various programming languages and trading platforms. These can be used for backtesting, live alerts, or integration into automated trading systems.

// C++ Example: Detect Identical Three Crows
#include <vector>
bool isIdenticalThreeCrows(const std::vector<double>& open, const std::vector<double>& close, const std::vector<double>& high) {
    int n = open.size();
    if (n < 3) return false;
    for (int i = 2; i < n; ++i) {
        bool bearish1 = close[i-2] < open[i-2];
        bool bearish2 = close[i-1] < open[i-1];
        bool bearish3 = close[i] < open[i];
        bool open2InBody1 = open[i-1] <= open[i-2] && open[i-1] >= close[i-2];
        bool open3InBody2 = open[i] <= open[i-1] && open[i] >= close[i-1];
        if (bearish1 && bearish2 && bearish3 && open2InBody1 && open3InBody2) return true;
    }
    return false;
}

# Python Example: Detect Identical Three Crows
def is_identical_three_crows(open, close, high):
    if len(open) < 3:
        return False
    for i in range(2, len(open)):
        bearish1 = close[i-2] < open[i-2]
        bearish2 = close[i-1] < open[i-1]
        bearish3 = close[i] < open[i]
        open2_in_body1 = open[i-1] <= open[i-2] and open[i-1] >= close[i-2]
        open3_in_body2 = open[i] <= open[i-1] and open[i] >= close[i-1]
        if bearish1 and bearish2 and bearish3 and open2_in_body1 and open3_in_body2:
            return True
    return False

// Node.js Example: Detect Identical Three Crows
function isIdenticalThreeCrows(open, close, high) {
  if (open.length < 3) return false;
  for (let i = 2; i < open.length; i++) {
    const bearish1 = close[i-2] < open[i-2];
    const bearish2 = close[i-1] < open[i-1];
    const bearish3 = close[i] < open[i];
    const open2InBody1 = open[i-1] <= open[i-2] && open[i-1] >= close[i-2];
    const open3InBody2 = open[i] <= open[i-1] && open[i] >= close[i-1];
    if (bearish1 && bearish2 && bearish3 && open2InBody1 && open3InBody2) return true;
  }
  return false;
}

//@version=6
indicator("Identical Three Crows Detector", overlay=true)
// Identify three consecutive bearish candles
bearish1 = close[2] < open[2] and close[2] < close[3]
bearish2 = close[1] < open[1] and close[1] < close[2]
bearish3 = close < open and close < close[1]
// Check if each opens within previous body
open2_in_body1 = open[1] <= open[2] and open[1] >= close[2]
open3_in_body2 = open <= open[1] and open >= close[1]
// Confirm minimal upper wicks
wick1 = high[2] - math.max(open[2], close[2]) < (open[2] - close[2]) * 0.2
wick2 = high[1] - math.max(open[1], close[1]) < (open[1] - close[1]) * 0.2
wick3 = high - math.max(open, close) < (open - close) * 0.2
// Final pattern condition
three_crows = bearish1 and bearish2 and bearish3 and open2_in_body1 and open3_in_body2 and wick1 and wick2 and wick3
plotshape(three_crows, title="Identical Three Crows", style=shape.triangledown, location=location.abovebar, color=color.red, size=size.small, text="3C")

// MetaTrader 5 Example: Detect Identical Three Crows
bool isIdenticalThreeCrows(double &open[], double &close[], double &high[])
{
   int n = ArraySize(open);
   if(n < 3) return false;
   for(int i=2; i<n; i++)
   {
      bool bearish1 = close[i-2] < open[i-2];
      bool bearish2 = close[i-1] < open[i-1];
      bool bearish3 = close[i] < open[i];
      bool open2InBody1 = open[i-1] <= open[i-2] && open[i-1] >= close[i-2];
      bool open3InBody2 = open[i] <= open[i-1] && open[i] >= close[i-1];
      if(bearish1 && bearish2 && bearish3 && open2InBody1 && open3InBody2) return true;
   }
   return false;
}

Conclusion

The Identical Three Crows is a reliable bearish reversal pattern when used in the right context. It excels in signaling trend changes after strong uptrends but should be confirmed with other tools. Traders should avoid using it in isolation and always manage risk. With practice and discipline, this pattern can become a valuable addition to any trading strategy.

Code Explanation

The provided code examples demonstrate how to detect the Identical Three Crows pattern across multiple platforms. Each implementation checks for three consecutive bearish candles, with each opening within the previous body and closing lower. The Pine Script version adds wick length confirmation for greater accuracy. These scripts can be integrated into trading systems for alerts, backtesting, or automated execution. Adjust parameters as needed for your market and timeframe.