Upside Gap Two Crows

The Upside Gap Two Crows is a three-candle bearish reversal pattern that appears after an uptrend. It signals that buying pressure may be exhausted and that sellers are starting to gain control. Traders use it to anticipate a potential top and prepare for short or exit strategies.

How to identify it

• Occurs after a clear uptrend.
• Candle 1: A strong bullish candle (long white/green body) that continues the uptrend.
• Candle 2: A candle that opens with a gap above Candle 1’s close (an upside gap) but then closes lower — often erasing much of the session’s gains. This candle shows hesitation despite the higher open.
• Candle 3: A bearish candle that opens within or near Candle 2’s body and closes below Candle 2’s close (often below Candle 1’s midpoint), confirming seller follow-through.

The key visual feature is the upside gap between Candle 1 and Candle 2 combined with the failure of Candle 2 to sustain the gap and the decisive bearish close on Candle 3.

Market psychology

• Candle 1: Bulls are in control, pushing prices up.
• Candle 2: Bulls attempt to extend the rally with a gap up, but sellers step in and push the close down, indicating weakening conviction.
• Candle 3: Sellers reinforce the shift by closing lower, suggesting a possible reversal from the prior uptrend.

Trading considerations

• Confirmation: Wait for Candle 3’s bearish close before acting. Prefer additional confirmation (e.g., increased volume on bearish days, RSI divergence, or a break of a support level).
• Entry: Common entries include shorting on a break below Candle 3’s low or below the low of the entire three-candle formation.
• Stop-loss: Place above the recent swing high or above the high of Candle 2 to limit risk if the pattern fails.
• Targets: Use nearby support levels, measured moves (height of prior up-leg), or risk-reward (e.g., 1.5–3× risk) to set exits.

Confirmation tools

• Volume: Rising volume on Candle 3 increases the pattern’s reliability.
• Momentum indicators: Bearish divergence on RSI or MACD strengthens the signal.
• Trend context: The pattern is more meaningful after an extended or steep uptrend than after a short, choppy rise.

Related patterns and contrasts

• Two Crows (standard): A similar bearish reversal where the second candle gaps up but is bearish; variants differ in gap and color details.
• Evening Star: Also a three-candle reversal, but typically includes a small-bodied star (doji or spinning top) in the middle and a larger bearish candle afterward.
• Three Black Crows: A stronger multi-day bearish reversal formed by three consecutive long bearish candles without gaps; more decisively bearish than the Upside Gap Two Crows.

Limitations and risks

• Like all candlestick patterns, it is not foolproof. False signals occur, especially in choppy or sideways markets.
• Should not be used in isolation — combine with support/resistance, volume, and other technical indicators.
• Gaps can be common around news events; consider fundamentals and market context.

Quick checklist before trading the pattern

• Is there a clear preceding uptrend?
• Does Candle 2 gap up and fail to hold gains?
• Does Candle 3 close decisively bearish, preferably on higher volume?
• Are additional indicators (RSI, moving averages, support levels) aligning with a bearish outlook?

Summary: The Upside Gap Two Crows is a bearish reversal pattern that highlights failed bullish continuation after an upside gap. It gains reliability when confirmed by Candle 3, volume, and complementary technical signals. Use prudent risk management and confirmation before trading it.