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What is Upside Gap Two Crows?

1184 reads · Last updated: December 5, 2024

The upside gap two crows pattern is a three-day candlestick chart formation that signals an upward price move may be running out of momentum and could reverse lower. Since the pattern involves three specific candles in a certain order, the pattern is not very common.

Definition

The Upward Gap Two Crows pattern is a three-day candlestick pattern indicating that the upward price momentum may have been exhausted and a reversal to the downside might occur. This pattern involves three specific candlesticks arranged in a particular order, making it relatively uncommon.

Origin

Candlestick charting techniques originated in Japan, initially used for rice trading. The Upward Gap Two Crows pattern, as a complex candlestick formation, became widely used in stock markets with the spread of technical analysis. Its exact formation time is unclear, but it has become known to investors as technical analysis tools evolved.

Categories and Features

The Upward Gap Two Crows pattern is a type of reversal pattern, typically appearing at the end of an uptrend. Its features include: the first day is a long bullish candlestick, the second day is a bullish candlestick with an upward gap, and the third day is a long bearish candlestick with an opening price below the second day's close. This pattern suggests that market sentiment may shift from optimistic to pessimistic, indicating a potential price decline.

Case Studies

Case Study 1: In 2018, a tech company experienced an Upward Gap Two Crows pattern after a continuous rise, followed by a significant price drop in the subsequent weeks, confirming the reversal signal of the pattern. Case Study 2: In early 2020, an energy company also exhibited a similar pattern during a rising market, after which market expectations for energy prices turned pessimistic, leading to a price decline.

Common Issues

Investors often misunderstand the reversal signal of the Upward Gap Two Crows pattern, assuming it always leads to a significant decline. However, market conditions and other technical indicators can affect its accuracy. Additionally, due to its rarity, investors may find it challenging to identify in actual trading.

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