Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30 years of stock market experience and widely regarded as a leading expert on chart patterns. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into seven languages. He may be reached at

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Bulkowski's Two Crows

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 02/03/2012

12,862 156.82 1.2%

5,369 63.27 1.2%

451 1.52 0.3%

2,906 45.98 1.6%

1,345 19.36 1.5%

YTD

5.3%

7.0%

-2.9%

11.5%

6.9%

Tom's Targets Overview: 02/03/2012

13,100 or 12,400 by 02/15/2012

5,500 or 5,150 by 02/15/2012

470 or 440 by 02/15/2012

3,100 or 2,800 by 02/15/2012

1,375 or 1,300 by 02/15/2012

Test Portfolios and CPI

Indus. strength: 4.3%

Mutt Losers: None YTD

Mutt Winners: 2.4%

Wilder RSI: None YTD

CPI:

on 12/20/2011

In my book, Encyclopedia of Candlestick Charts, pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

The two crows candlestick acts as a bearish reversal but only about randomly. Thus, you cannot depend on this breaking out downward or upward, for that matter. The overall performance is on the far side of mid list, so the price trend after the breakout is just mediocre.

A look at the performance numbers shows that the best performance comes from patterns that obey the primary trend: upward breakouts in a bull market or downward ones in a bear market. Those "trade with the trend" setups look as if they will do well.

Important Results

Discussion

Identification Guidelines

Three Trading Tidbits

Example

Two Crows: Important Results

Theoretical performance: Bearish reversal

Tested performance: Bearish reversal 54% of the time

Frequency rank: 64

Overall performance rank: 61

Best percentage meeting price target: 54% (bear market, down breakout)

Best average move in 10 days: -4.84% (bear market, down breakout)

Best 10-day performance rank: 26 (bull market, up breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Two Crows

Two Crows: Discussion

The two crows candlestick acts as a bearish reversal in theory as well as in reality, but testing shows that it acts that way only 54% of the time. I consider that "near random" because you will not be able to predict the breakout direction with any accuracy. The overall performance rank is 61, which is well down the performance list from 1 (best). With a frequency rank of 64, the two crows candlestick should be plentiful enough to find.

The best average move 10 days after the breakout is a drop of 4.84% after a downward breakout in a bear market. I consider moves higher than 6% to be good ones, so this candlestick falls well short of that. The best 10-day performance rank is 26 and that happens after an upward breakout in a bull market. That gauge is a comparison with other candle types, and the two crows does well.

Two Crows: Identification Guidelines

Characteristic	Discussion
Number of candle lines	Three.
Price trend leading to the pattern	Upward.
Configuration	Look for a tall white candle in an upward price trend. Following that, a black candle has a body that gaps above the prior candle's body. The last day is another black candle, but this one opens within the prior candle's body and closes within the body of the first candle in the pattern.

Two Crows: Three Trading Tidbits

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

Two crows candles that appear within a third of the yearly low perform best -- page 856.
Select tall candles for the best performance -- page 856-857.
Trade the two crows in an upward retrace of the primary down trend -- page 858.

Two Crows: Example

The two crows candlestick on the daily scale

The two crows candlestick appears circled in red on the daily scale. In an upward price trend, look for a tall white candle. Following that is a black candle with a body that gaps above the prior candle's body, like that shown. The last day is another black candlestick that opens within the body of the prior black body but closes within the body of the white candle.

In this example, the breakout from the two crows candlestick is upward because price first closes above the top of the candlestick pattern. Thus, this candle acts as a bullish continuation of the upward price trend.

An appealing setup for the two crows is to find the pattern when the primary trend is downward. The two crows appear as part of an upward retrace of the downward trend. Once price breaks out lower, the stock joins the existing trend and they head off toward zero together.

-- Thomas Bulkowski