Upside Gap Two Crows: The Three-Candle Warning After a Gap Up

The upside gap two crows is one of those candlestick patterns with a dramatic name and a mixed record. It shows up after a stock has been climbing: a strong green day, then a gap higher that fizzles into a red candle, then a second, bigger red candle. On paper it says the buyers are running out of steam. In testing, it says something rather different, and that gap between theory and data is what this article is about.

We’ll go through how to spot it, what the numbers say, three worked examples on a made-up stock, and a practical way to use it without betting the house on three candles.

What the upside gap two crows looks like

The StockCharts ChartSchool candlestick dictionary describes it as a three-day bearish pattern that only happens in an uptrend. Break it down day by day:

1. Day 1: a long white (bullish) candle. The trend is up and the bulls are clearly in charge.
2. Day 2: the stock opens with a gap up, but closes lower than it opened, leaving a small black (bearish) body. The important part is that this body still sits entirely above Day 1’s body. The gap stays open at the close.
3. Day 3: another black candle, bigger than Day 2’s. It opens above Day 2’s open and closes below Day 2’s close, so its body swallows Day 2’s body completely. But its close is still above Day 1’s close.

Those last two conditions trip people up. Day 3 engulfs Day 2, yet it doesn’t fill the gap back down into Day 1’s body. If Day 3 closes inside Day 1’s body, you’re looking at something else, not an upside gap two crows.

The “two crows” are the two black candles perched above the white one. If you have read our piece on the three black crows pattern, the imagery is familiar: black candles as birds sitting on a branch, hinting at trouble.

The story the candles are supposed to tell

The classic reading goes like this. Day 1 shows confidence. On Day 2, buyers are so eager that the stock opens with a gap up, but they can’t hold it, and sellers push it back down through the session. Still, it closes above Day 1, so nothing is broken yet. On Day 3 the stock opens even higher, and again sellers take over, this time harder, wiping out Day 2’s entire body. Two failed attempts to push higher, back to back. That’s the bearish case.

It’s a neat story. The trouble is that Day 3’s close is still above Day 1’s close. The stock hasn’t actually given back the ground it gained in that first strong session. Look at it that way and the pattern could just as easily be a pause near the top of a rally, the kind of brief shakeout that strong trends throw up all the time.

What the testing shows

Thomas Bulkowski, who has tested candlestick patterns in his Encyclopedia of Candlestick Charts, publishes a summary on his upside gap two crows page. His headline finding is blunt. The pattern is supposed to be a bearish reversal, but in his testing it acted as a bullish continuation 60% of the time. In other words, in six cases out of ten, price kept going in the direction of the prior uptrend.

A few more numbers from the same page, all ranked out of the 103 candlestick patterns he tracks, where 1 is best:

• Frequency rank: 75. It’s not common. You’ll find it if you look, but it won’t show up on your screener every week.
• Overall performance rank: 74. Well down the list.
• Best percentage meeting price target: 45%, which was in a bear market with a downward breakout.
• Best average move 10 days after the breakout: a 5.50% drop, again in a bear market with a downward breakout. Bulkowski says he treats moves of 6% or more as worthwhile, so this falls just short.
• Best 10-day performance rank: 22, for a downward breakout in a bull market. But he notes the average drop in that case is just 3.64%.

He also points out that these results are based on what he calls perfect trades, so real-world fills, costs and slippage would only make them look worse.

The upside gap two crows is named like a sell signal, but on Bulkowski’s numbers it is closer to a coin that lands on “trend continues” six times in ten.

Three things the data says about better setups

Bulkowski’s page lists three tips from his book that are useful even if you never trade this pattern on its own:

• Near the yearly high, expect continuation. He finds that upside gap two crows appearing within a third of the yearly high tend to act as continuations most often. So if a stock is close to its 52-week high and prints this pattern, the base case is that the uptrend carries on.
• Tall candles do better. He suggests selecting patterns made of tall candles for the best performance. Small, cramped versions carry less information.
• Trade with the primary trend. The best setups, in his testing, were those where the breakout direction joined the primary trend. An upward breakout in an uptrend, or a downward breakout in a downtrend, did better than a breakout against it.

That last point matters. The pattern by definition forms after an upward move, but that move could be a short bounce inside a bigger downtrend. In that case a downward break is going with the bigger trend, and that’s the setup worth paying attention to.

Worked example 1: spotting a textbook pattern

Let’s use a hypothetical stock, call it ABC Industries, that has rallied for two weeks. All prices below are made up for illustration.

• Day 1: opens at ₹1,000, closes at ₹1,048. A tall white candle, body of ₹48.
• Day 2: opens at ₹1,062, closes at ₹1,055. A small black body from ₹1,062 down to ₹1,055, sitting fully above Day 1’s close of ₹1,048. The gap holds.
• Day 3: opens at ₹1,068, high of ₹1,075, closes at ₹1,051. Black body from ₹1,068 down to ₹1,051.

Now check the rules. Day 3 opened above Day 2’s open (₹1,068 against ₹1,062) and closed below Day 2’s close (₹1,051 against ₹1,055), so its body engulfs Day 2’s. Its close of ₹1,051 is still above Day 1’s close of ₹1,048. Every condition is met. This is an upside gap two crows.

Notice how thin the margin is. Day 3 closed just ₹3 above Day 1’s close. One more rupee of selling on a weaker day and the gap would have been nearly filled. That’s typical, and it’s why we don’t read too much into the pattern alone.

Worked example 2: the pattern that didn’t work

Here’s how the same setup can go the other way, which on Bulkowski’s numbers is the more common outcome.

On Day 4, ABC opens at ₹1,053 and buyers return. It closes at ₹1,082, above Day 3’s high of ₹1,075. Anyone who shorted on Day 3’s close at ₹1,051 is now sitting on a loss of ₹31 a share, and the stock has made a new high for the move. The two crows turned out to be a two-day pause.

This is the bullish continuation case. It is also where traders who acted on the name of the pattern, rather than on confirmation, get hurt.

Worked example 3: waiting for confirmation and sizing the trade

A more careful approach is to treat the pattern as a warning, then wait for price to prove it. One simple rule we like: do nothing until the stock closes below Day 1’s open, the base of that first strong candle. In our example that’s ₹1,000. A close below it means the whole Day 1 advance has been undone, which is a much stronger signal than the pattern by itself.

Say ABC closes at ₹995 on Day 6. A trader who wants to act on the breakdown places the stop above the pattern’s high of ₹1,075. The risk per share is ₹1,075 minus ₹995, or ₹80.

Now sizing. Suppose the trading account is ₹10 lakh and the trader risks 1% per trade, which is ₹10,000. Divide ₹10,000 by ₹80 and you get 125 shares. If the stop is hit, the loss is ₹10,000 before costs, and the account lives to fight another day. Our guide to risk management in trading goes deeper into this kind of sizing.

Waiting has a cost: the entry at ₹995 is ₹56 lower than the Day 3 close. But it filters out the many cases like Example 2 where the stock simply resumed its climb.

For someone already holding the stock, this pattern is better used as a cue to tighten a stop than as a reason to sell everything.

How to use it if you already own the stock

Most retail investors meet this pattern from the long side: they own the stock, it has run up, and now there are two red candles at the top. Panicking out of a good position because of a pattern that continues higher 60% of the time, per Bulkowski’s testing, is not a great habit.

A more measured response is to move your stop-loss up, perhaps to just below Day 1’s open or Day 1’s low, and let the market decide. If the stock keeps climbing, you’re still in. If it breaks down, you’re out with most of your gains intact.

How it differs from patterns it gets confused with

Two crows. Bulkowski’s page points readers to a separate two crows pattern too. The names are close, so check the exact rules before labelling a chart; here, the defining feature is that Day 3 engulfs Day 2’s body yet still closes above Day 1’s close.

Evening star. Also a three-candle top pattern with a gap after a white candle, but the middle candle is a small-bodied day that gaps up, and the third candle closes below the midpoint of the first candle’s body, as the StockCharts dictionary defines it. That deeper close is exactly what the upside gap two crows lacks. Our evening star guide covers it.

Rising three methods. This one is openly a continuation pattern, with small candles resting inside a big white candle’s range before the trend resumes. If anything, the test results make the upside gap two crows behave more like a cousin of the rising three methods than of a true top.

A quick checklist before you act

• Is there a clear uptrend leading in, and is Day 1 a genuinely tall white candle?
• Does Day 2’s black body sit fully above Day 1’s body, with the gap still open at the close?
• Does Day 3’s black body engulf Day 2’s body while closing above Day 1’s close?
• Where is the stock relative to its yearly high? Near the high, lean towards continuation.
• What’s the bigger trend? A downward break that joins a larger downtrend is the version worth trading.
• Have you waited for a confirming close, and do you know exactly where your stop is and how many shares that allows?

For more patterns and indicators in one place, see our hub on technical analysis for Indian stocks.

The bottom line

The upside gap two crows looks bearish and is taught as bearish. Bulkowski’s testing says that more often than not, the stock keeps going up. That doesn’t make the pattern useless. It makes it a yellow light rather than a red one: a reason to watch closely, tighten stops and wait for price to confirm, not a reason to reverse your position on the spot.

Disclaimer: This article is for education only and is not investment advice. The stock and all prices in the examples are hypothetical. Trading involves risk of loss; consult a SEBI-registered adviser before making investment decisions.