BEARISH UPSIDE GAP TWO CROWS
Definition
This is a three-candlestick bearish reversal pattern. The gap between the black body of the second day and the white body of the first day is known as the upward gap. The second and third black candlesticks are referred to as the two black crows.
Recognition Criteria
1. The market is currently characterized by a strong upward trend.
2. A normal or long white candlestick appears on the first day.
3. The second day is a short black candlestick that gaps up.
On the final day, another black candlestick appears that opens at or above the open, and then closes below the close of the previous day, yet still above the close of the first day.
Pattern Requirements and Flexibility
The Upside Gap Two Crows should start with a normal or long white body. A short black body with an upside body gap follows. The third day is another black body that engulfs the second day. The third day may open at or above the open of the second day. The third day should close above the body limits of the first day, leaving the gap created between the first and the second days still unfilled.
Trader’s Behavior
An uptrend has been in place, and the white candlestick adds to the bullishness that is already present. The following day opens higher with a gap up. Prices fall a little bit, and a short black candlestick is formed. The bulls are not alarmed by this day, because even though a black body appears, prices fail to close below the close of the previous day. The third day opens at or above the open of the second day, but it falls throughout the day and closes below the previous close. The two consecutive black bodies show that the strength of the uptrend has been questioned.
Sell/Stop-Loss Levels
The confirmation level is determined by the last close. For confirmation, prices should fall below this level.
The stop-loss level is defined as the last high. If, following the bearish signal, prices rise instead of falling and either close or make two consecutive daily highs above the stop-loss level, without detecting any bullish pattern, the stop-loss is triggered.