Upside Gap Two Crows

The Upside Gap Two Crows is a three-candlestick bearish reversal pattern that occurs after an uptrend.

It is relevant over all time units. It is a rather uncommon and not-so-powerful pattern.

Its characteristics are as follows:

• The Upside Gap Two Crows must occur after an uptrend.

• The 1st candlestick must be green and preferably powerful.

• The body of the 2nd candlestick must be red and form a gap with the previous candlestick.

• The 3rd candlestick must be red and should preferably swallow the body of the 2nd candlestick.

Such a pattern occurs after an uptrend, the day after gains were made, when prices open gap up while the bullish forces dry up and prices fall before closing lower. The day after, prices open gap up again, they ideally reach new highs but they end up closing below the previous close. The 3rd Japanese candlestick thus swallows the 2nd one.

The trend is still bullish but stakeholders who were positioned higher start doubting the strength of the trend since prices cannot remain on their highs despite the upside gaps. Traders start to grow impatient and their stops often become more frequent in order to protect their gains. Some contrarians traders start positioning themselves. If prices fall again the day after, the trend is likely to reverse and the pattern is validated. In this example, the day after opens gap down, what launches a new downtrend.

This pattern can include more than two “crows” and thus be more powerful since the psychological pressure will weigh even more on the bulls.

If a green Japanese candlestick appears after the two crows and reaches new highs, this will invalidate the pattern and form a “Flag Pattern”.

Regardless of the quality of the Upside Gap Two Crows, it is wiser to wait for the pattern to be confirmed by the next Japanese candlestick that should be bearish if one wishes to be uncovered. Other signals can reinforce this one: this pattern could appear below a resistance, for example, with the failures on the resistance reinforcing the signal.

The invalidation threshold can be placed above the highest point of the pattern.