The Gap Three Methods is a three-bar Japanese candlestick pattern that signifies the continuation of the current trend. This pattern serves as a variant of the Upside Tasuki Gap, but with an added twist where the third candle entirely closes the gap between the first two candles.
Key Takeaways
- The Upside/Downside Gap Three Methods is a three-bar candlestick pattern.
- The Upside Gap Three Methods pattern suggests a bullish continuation of the trend.
- The Downside Gap Three Methods pattern suggests a bearish continuation of the trend.
Understanding the Upside/Downside Gap Three Methods
Bullish Scenario: Upside Gap Three Methods
The Upside Gap Three Methods highlights the likelihood of an ongoing uptrend with the following characteristics:
- The market is currently in an uptrend.
- The first bar is a white candle with a long real body.
- The second bar is another white candle with a long real body, where the shadows of both candles don’t overlap.
- The third bar is a black candle that opens within the real body of the first candle and closes within the real body of the second candle.
Bearish Scenario: Downside Gap Three Methods
The Downside Gap Three Methods indicates a continued downtrend with these attributes:
- The market is currently in a downtrend.
- The first bar is a black candle with a long real body.
- The second bar is another black candle with a long real body, where the shadows of both candles don’t overlap.
- The third bar is a white candle that opens within the real body of the second candle and closes within the real body of the first candle.
The Upside/Downside Gap Three Methods is relatively uncommon but delivers a fair degree of reliability. Once identified, it’s crucial to corroborate this finding with other forms of technical analysis, such as price action and technical indicators.
Navigating Trader Psychology in Gap Three Methods
Bullish Continuation: Upside Gap Three Methods
In an existing uptrend, the first candle closes well above its opening price, reinforcing the bulls. Optimism is heightened as the second candle opens higher with strong buying pressure, taking the price to new highs. When profit-taking brings the third candle back to close the gap, bulls are inclined to believe the uptrend will persist.
Bearish Continuation: Downside Gap Three Methods
Amid a downtrend, the initial candle closes significantly lower, validating bearish sentiment. Confidence grows as the second candle opens lower with intensified selling. When a surge in short covering causes the third candle to close the gap, bears expect the downtrend to regain momentum.
Practical Example: Trading the Gap Three Methods Pattern
Paul identifies an Upside Gap Three Methods pattern on Cellectis S.A. chart and decides to leverage this for a long position in conformance with the trend. He enters the trade at the third candle’s closing price of $16.39, setting a stop-loss order below the first candle’s low at $15.75. Alternatively, David takes a cautious route, placing a buy stop order slightly above the second candle’s high at $16.95 for additional confirmation. He sets his stop-loss at the third candle’s low, pegging it at $16.27.
Utilizing Gap Three Methods effectively requires a blend of keen pattern recognition and supplementary technical tools for thorough validation.
Related Terms: bullish pattern, bearish pattern, trend continuation, gap trading, candlestick graphs.
