Upside/Downside Gap Three Methods

DEFINITION of 'Upside/Downside Gap Three Methods'

The gap three methods are three-candle reversal patterns that appear on candlestick charts.

BREAKING DOWN 'Upside/Downside Gap Three Methods'

The upside gap three methods is a bearish reversal pattern, where:

  1. The market is in an uptrend;
  2. The first candle is a white candle with a long real body;
  3. The second candle is a white candle with a long real body where the shadows over both candles don’t overlap;
  4. And, the third candle is a black candle that has an open within the real body of the first candle and a close within the real body of the second candle.

The downside gap three methods is a bullish reversal pattern, where:

  1. The market is in a downtrend;
  2. The first candle is a black candle with a long real body;
  3. The second candle is a black candle with a long real body where the shadows over both candles don’t overlap;
  4. And, the third candle is a white candle that has an open within the real body of the second candle and a close within the real body of the first candle.

The gap three methods is a fairly accurate chart pattern, but it doesn’t occur all that frequently in the wild. When it is identified, traders should be sure to use other forms of technical analysis to confirm that reversal, including chart patterns and technical indicators.