What Is the Upside/Downside Gap Three Methods?
Let me explain the Gap Three Methods to you directly: it's a three-bar Japanese candlestick pattern that points to the continuation of the current trend. Think of it as a variation of the Upside Tasuki Gap, but here the third candle fully closes the gap between the first two candles.
Key Takeaways
You need to know that the Upside/Downside Gap Three Methods is strictly a three-bar candlestick pattern. The upside version clearly suggests a bullish trend will keep going, while the downside version indicates a bearish trend continuation.
Breaking Down the Upside/Downside Gap Three Methods
Starting with the Upside Gap Three Methods, this is a bullish continuation pattern, and here's what defines it: the market must be in an uptrend, the first bar is a white candle with a long real body, the second is another white candle with a long real body where the shadows don't overlap with the first, and the third is a black candle opening within the real body of the first and closing within the real body of the second.
You can visualize this from typical charts, like those illustrated by experts, showing the gap and its closure.
Now, for the Downside Gap Three Methods, it's the bearish counterpart: the market is in a downtrend, the first bar is a black candle with a long real body, the second is another black candle with non-overlapping shadows, and the third is a white candle opening within the real body of the second and closing within the real body of the first.
Again, charts depict this clearly with the downward gap being filled by the third candle.
Remember, this pattern is rare but reasonably reliable; when you spot it, always confirm with other technical analysis, such as price action or indicators.
Upside Gap Three Methods Trader Psychology
Imagine the market in an uptrend; the first candle rallies strongly, closing well above the open with a wide body, boosting bull confidence and pressuring bears. The second candle gaps up and pushes to a new high with solid buying, but then profit-taking on the third candle fills the gap. At this point, bulls expect the uptrend to resume now that the gap is closed.
Downside Gap Three Methods Trader Psychology
In a downtrend, the first candle drops weakly, closing well below the open with a wide body, strengthening bears and cautioning bulls. The second candle gaps down with active selling to a new low, and short covering on the third fills the gap. Bears then anticipate the downtrend will continue.
Practical Example of Trading a Gap Three Methods Pattern
Take Paul, who spots an Upside Gap Three Methods on Cellectis S.A.'s chart and plans a long position. He could enter at the third candle's close of $16.39, setting a stop-loss below the first candle's low at $15.75. For a more conservative move, he might place a buy stop above the second candle's high at $16.95, confirming the uptrend, and use the third candle's low at $16.27 for the stop-loss.
Charts of such examples show the pattern in action clearly.
Final Notes
I must remind you that this information isn't tax, investment, or financial advice. It's presented without regard to your specific objectives, risk tolerance, or circumstances, and may not suit everyone. Past performance doesn't predict future results, and investing carries risks, including potential loss of principal.
