Signal: Bearish Reversal Reliability: Moderate Rarity: Rare Confirmation: Recommended Trend Position: Uptrend Top Best Timeframes: Daily+
What is the Bearish Two Crows? #
The Bearish Two Crows is a sophisticated three-candlestick reversal pattern that signals potential trend change from bullish to bearish momentum through a complex sequence of gap-up failures and progressive weakness. This pattern represents one of the more nuanced and reliable bearish reversal formations in technical analysis, offering traders a moderate-reliability signal that captures the psychology of buying exhaustion and emerging distribution.
The pattern unfolds as a three-session market narrative that tells the story of failing bull attempts: an initial strong bullish session establishes upward momentum, followed by two consecutive sessions that gap higher on opening but fail to sustain advances, ultimately closing progressively lower and within the range of the initial bullish candle. The “two crows” terminology derives from the ominous appearance of the two black candles perched above the white candle, resembling crows gathering before a storm.
With success rates typically ranging from 60-70% when properly confirmed, the Bearish Two Crows offers traders a moderately reliable but rare reversal signal that requires careful pattern recognition and market context analysis. The pattern’s strength lies in its demonstration of repeated gap-up failures, suggesting that even aggressive buying interest cannot sustain higher prices, indicating potential trend exhaustion and reversal.
Pattern Structure and Recognition #
Three-Candle Formation Sequence #
First Candle – The Rally: A strong bullish candle that continues the existing uptrend, demonstrating continued buying interest and establishing the foundation for the pattern. This candle should show substantial gains with good volume participation.
Second Candle – First Crow: A bearish candle that gaps up from the previous session’s close but fails to sustain the advance, closing within the upper portion of the first candle’s body. This represents the first sign of buying exhaustion despite initial gap strength.
Third Candle – Second Crow: Another bearish candle that gaps up from the second candle’s close but closes even lower than the second candle, ideally penetrating deeper into the first candle’s body. This confirms the pattern’s bearish implications through progressive weakness.
Critical Requirements for Validity #
Uptrend Context: The pattern must appear after a sustained upward trend with clear bullish momentum to have reversal significance.
Gap Requirements: Both bearish candles must gap up from the previous session’s close, demonstrating initial buying interest that ultimately fails.
Progressive Weakness: The third candle must close lower than the second candle, showing accelerating bearish pressure.
Body Penetration: Both bearish candles should close within the first candle’s body range, with the third candle penetrating deeper than the second.
Volume Characteristics: The first candle should show strong volume, while the gap-up failures may show either high volume (distribution) or declining volume (lack of follow-through).
Size Proportions: The first candle should be substantial relative to recent trading ranges, while the two crows can be smaller but must maintain their gap-up failure characteristics.
Market Psychology Behind the Pattern #
The Bearish Two Crows reveals complex multi-session psychological dynamics:
Initial Bullish Confidence #
The strong first candle demonstrates:
- Continued institutional and retail buying interest
- Breakout attempts or trend continuation momentum
- Market optimism pushing prices to new relative highs
- Volume participation suggesting broad-based buying support
- Technical momentum indicating potential for further advances
First Gap Failure Psychology #
The second candle’s gap-up failure indicates:
- Initial buying enthusiasm that cannot be sustained
- Supply emerging at higher price levels
- Profit-taking beginning to influence price action
- Early warning that buying interest may be waning
- Smart money potentially beginning distribution
Second Gap Failure Confirmation #
The third candle’s deeper failure confirms:
- Buying exhaustion becoming more pronounced
- Accelerating distribution or profit-taking activity
- Failed breakout attempts indicating resistance overhead
- Institutional selling potentially overwhelming retail buying
- Market recognition that the uptrend may be ending
The pattern’s bearish interpretation stems from the repeated inability to sustain gap-up advances despite initial strength, suggesting that even aggressive buying cannot maintain higher price levels and that selling pressure is increasing.
Types and Variations #
Classic Two Crows #
The textbook formation with clean gaps, proper body penetration, and clear progressive weakness. Both crows close within the first candle’s body with the second crow closing lower than the first.
Deep Penetration Variant #
A more powerful version where the second crow closes in the lower half of the first candle’s body, indicating stronger bearish pressure and higher reversal probability.
High Volume Distribution Pattern #
Enhanced patterns where the gap-up failures occur on high volume, suggesting institutional distribution rather than simple profit-taking, increasing bearish reliability.
Evening Star Hybrid #
Variations that resemble evening star patterns but maintain the specific gap-up failure characteristics of the two crows, combining the strengths of both patterns.
Resistance Level Two Crows #
Exceptionally strong patterns that form at major resistance levels, where the gap-up failures represent tests of resistance that ultimately fail, providing both pattern and level confluence.
Extended Crow Formation #
Rare variations featuring additional gap-up failures beyond the classic two crows, creating multiple consecutive failures that strengthen the bearish thesis through persistent weakness demonstration.
Trading the Bearish Two Crows #
Entry Strategies #
Pattern Completion Entry: Enter short positions after the third candle closes, confirming the pattern’s completion and the failure of the second gap-up attempt.
Confirmation Entry: Wait for the following session to open below the third candle’s close or show additional weakness, providing extra confirmation of the bearish reversal.
Volume-Confirmed Entry: Enter only when the pattern shows appropriate volume characteristics – strong volume on the first candle with either high distribution volume or declining volume on the failures.
Resistance Level Entry: Prioritize patterns that form at significant resistance levels, adding technical confluence to the psychological pattern signal.
Stop Loss Management #
Conservative Approach: Place stops above the highest high of the three-candle pattern, as any move above this level invalidates the bearish thesis completely.
Tight Pattern Stops: Use stops just above the third candle’s high for aggressive entries, but be prepared for higher whipsaw risk.
Resistance Level Stops: When patterns form at resistance, use stops above the resistance level rather than the pattern high if it provides better risk-reward ratios.
Profit Target Strategy #
First Support Targets: Target the nearest significant support level below the pattern as the initial profit objective.
Pattern Projection: Project the height of the first candle downward from the third candle’s close as a minimum target when strong confirmation appears.
Multi-Target Approach: Set multiple profit targets at successive support levels, taking partial profits at each level to manage the moderate reliability nature.
Enhancing Pattern Reliability #
Technical Indicator Confluence #
RSI Overbought Conditions: The pattern gains credibility when RSI shows overbought readings (above 70) with potential bearish divergence during formation.
MACD Divergence: Look for bearish divergence in MACD during the uptrend leading to the pattern, with potential bearish crossover providing confirmation.
Stochastic Overbought: Stochastic should show overbought conditions with potential bearish crossover coinciding with pattern completion.
Resistance and Support Context #
Major Resistance Confluence: Two Crows patterns gain significant strength when forming at major horizontal resistance, previous highs, or long-term trendlines.
Moving Average Resistance: Patterns forming at major moving averages (50, 100, 200-day) show enhanced reliability when averages act as resistance.
Multi-Timeframe Resistance: The strongest setups occur when daily patterns align with weekly or monthly resistance levels.
Market Environment Assessment #
Extended Uptrend Context: The pattern works best when appearing after extended bull runs where momentum indicators show potential exhaustion.
Volume Analysis: Declining volume during the uptrend preceding the pattern suggests weakening buying interest, enhancing pattern reliability.
Sector Weakness: Enhanced reliability when the stock’s sector shows signs of distribution or when leading stocks begin showing similar reversal patterns.
Advanced Pattern Analysis #
Gap Analysis Deep Dive #
Gap Size Significance: Larger gaps that fail provide stronger bearish signals as they represent more significant buying enthusiasm that couldn’t be sustained.
Gap Volume Characteristics: High volume gaps that fail suggest institutional distribution, while low volume gaps may indicate lack of genuine buying interest.
Multiple Gap Failures: The combination of two consecutive gap failures creates a powerful psychological message about the market’s inability to advance.
Intraday Development Patterns #
Opening Strength Analysis: Strong gap openings that immediately fail provide more reliable signals than gaps that hold for extended periods before failing.
Session Development: Patterns where the bearish candles show immediate weakness from the open rather than late-session selling often prove more reliable.
Volume Distribution: Heavy volume during gap openings followed by lighter volume on declines may indicate profit-taking rather than distribution.
Confirmation Analysis #
Follow-Through Quality: Strong confirmation requires additional bearish candles with volume expansion, preferably breaking below nearby support levels.
Gap-Down Confirmation: The strongest confirmation occurs when the session following pattern completion gaps down, confirming the bearish sentiment shift.
Volume Expansion: Confirmation sessions should show volume expansion to validate that institutional participants recognize the reversal signal.
Common Mistakes and Prevention Strategies #
Pattern Recognition Errors #
Incomplete Pattern Trading: Trading after only the second candle without waiting for the complete three-candle formation and proper confirmation.
Gap Requirement Overlooking: Accepting patterns without proper gap-up characteristics, missing the essential psychology of failed buying enthusiasm.
Context Ignorance: Trading the pattern without sufficient uptrend context, reducing the reversal significance.
Volume Misinterpretation: Failing to analyze volume characteristics that distinguish between distribution and simple profit-taking.
Trading Execution Mistakes #
Premature Entry: Entering positions before pattern completion, missing the essential confirmation provided by the third candle’s close.
Inadequate Confirmation: Accepting weak follow-through that doesn’t properly validate the bearish reversal thesis.
Stop Placement Errors: Using stops that don’t account for potential retests of pattern highs or resistance levels.
Unrealistic Targets: Setting profit targets without considering nearby support levels or market structure.
Risk Management Failures #
Oversized Positions: Using full position sizes for a pattern with moderate rather than high reliability.
Confirmation Quality Standards: Accepting any downward movement as confirmation rather than requiring quality bearish follow-through.
Market Environment Ignorance: Trading Two Crows patterns during strong bull market conditions where reversals are less likely to succeed.
Performance Optimization Framework #
Pattern Quality Assessment #
Uptrend Strength: 25% weight – Duration, momentum characteristics, volume participation
Gap Failure Quality: 25% weight – Gap sizes, volume characteristics, failure timing
Resistance Level Interaction: 20% weight – Major resistance confluence, technical significance
Confirmation Strength: 20% weight – Volume expansion, follow-through quality, additional bearish signals
Market Environment: 10% weight – Sector conditions, overall market sentiment, volatility levels
Risk-Adjusted Position Sizing #
Standard Base Position: Use normal position sizing for high-quality setups with strong confluence factors
Enhanced Position: Consider 125% of normal size only for exceptional setups at major resistance with perfect pattern formation
Reduced Position: Use 75% of normal size for patterns with moderate confluence or uncertain market conditions
Market Condition Sensitivity: Reduce position sizes during strong bull market conditions where reversals face headwinds
Portfolio Integration Strategy #
Reversal Allocation: Allow Two Crows patterns up to 15-20% of total reversal position allocation
Confluence Clustering: Can take multiple Two Crows positions when they show individual quality and different market sectors
Market Environment Dependency: Increase allocation during market conditions favoring reversals, reduce during strong trends
Risk Distribution: Avoid concentration in single timeframes or market sectors when using multiple patterns
Quick Reference Guide #
Pattern Validation Checklist #
- [ ] Clear uptrend context with sustained bullish momentum
- [ ] Strong first bullish candle with good volume
- [ ] Second candle gaps up but closes bearish within first candle’s body
- [ ] Third candle gaps up but closes lower than second candle
- [ ] Both gaps show failed buying attempts
- [ ] Pattern completion with third candle close
- [ ] Formation at resistance levels preferred
- [ ] Appropriate volume characteristics throughout
- [ ] Supportive market environment for reversals
Trading Quality Assessment #
High-Quality Setup:
- Extended uptrend with clear momentum
- Perfect pattern formation with clean gaps
- Formation at major resistance confluence
- Strong volume on first candle, appropriate distribution on failures
- Bearish confirmation with volume expansion
- Supportive technical indicators showing overbought conditions
Avoid Trading When:
- Insufficient uptrend context
- Gaps too small or missing entirely
- Pattern formation away from significant resistance
- Hostile market environment for reversals
- Weak or absent confirmation
- Strong overall bull market momentum
Confirmation Requirements #
- Additional bearish candle after pattern completion
- Volume expansion on confirmation session
- Break below nearby support levels
- Technical indicators supporting reversal
- Gap-down opening preferred for strongest confirmation
Advanced Risk Management #
Dynamic Position Management #
Pattern-Based Sizing: Use standard position sizing for complete, confirmed patterns
Confirmation-Based Scaling: Increase position size only after exceptional confirmation with volume
Strict Stop Discipline: Use stops above pattern high with no exceptions for risk management
Profit Protection: Take partial profits at first support level due to moderate reliability nature
Portfolio Risk Controls #
Concentration Limits: Maximum 20% of reversal allocation in Two Crows patterns
Quality Standards: Maintain higher standards for pattern recognition and confirmation
Market Regime Sensitivity: Reduce exposure during confirmed strong bull markets
Diversification Requirements: Spread Two Crows positions across different sectors and timeframes
Conclusion #
The Bearish Two Crows represents a valuable and moderately reliable reversal pattern that captures the psychology of failed buying attempts through its distinctive gap-up failure sequence. The pattern’s strength lies in its demonstration of repeated buying exhaustion, where even aggressive gap-up openings cannot sustain advances, suggesting potential trend change from bullish to bearish momentum.
The pattern’s three-candle structure provides traders with clear entry points and risk management parameters, while its moderate reliability makes it suitable for integration into diversified reversal strategies. Success with Two Crows patterns requires patience in waiting for complete formation, discipline in requiring appropriate confirmation, and skill in recognizing the market contexts where reversal patterns show enhanced probability.
For traders seeking to identify potential trend changes in extended uptrends, the Bearish Two Crows offers a structured approach to recognizing selling pressure emergence through the lens of gap failure psychology. The pattern works best when combined with resistance level confluence and supportive technical indicators showing overbought conditions.
Key Takeaway: The Bearish Two Crows offers reliable reversal signals when complete three-candle formation with proper gap-up failures occurs at resistance levels during extended uptrends. Focus on patterns showing clear progressive weakness with appropriate volume characteristics and always wait for pattern completion before entry. The moderate reliability nature makes this pattern suitable for balanced reversal strategies with proper position sizing and confirmation requirements.