Exploring the anatomy and surprising statistical behavior of these rare gap-based continuation patterns.
There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again and again.
The Gap Three Methods family pairs a dramatic price gap with a quick “test” candle that fails to fill it.
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Upside Gap Three Methods (UG3M) forms in an up-trend and is supposed to be bullish.
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Downside Gap Three Methods (DG3M) forms in a down-trend and is supposed to be bearish.
Both are three-candle relatives of the Tasuki‐Gap patterns, but here the third candle does close the gap (part-way) while still respecting the leading trend’s range.
Anatomy – side-by-side checklist
| Sequence | Upside (bullish theory) | Downside (bearish theory) |
|---|---|---|
| Trend in | Clear advance | Clear decline |
| Candle 1 | Long white/green body, closes near high | Long black/red body, closes near low |
| Candle 2 | Long white body gaps up; shadows don’t overlap Candle 1 | Long black body gaps down |
| Candle 3 | Black/red body opens inside Candle 2, drops to close inside the gap yet above Candle 1 close | White/green body opens inside Candle 2, lifts to close inside the gap yet below Candle 1 close |
| Gap rule | Gap is partly closed but not filled | Same, mirrored |
If Candle 3 completely erases the gap, the pattern is invalid.
Market psychology
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Impulse & gap (C-1 → C-2) – dominant side drives price so hard it “jumps the fence,” leaving a daylight gap.
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Counter-probe (C-3) – the other side lunges back but can only nibble into the gap before stalling.
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Decision line – that residual gap acts like a spring: a break with the original trend squeezes the counter-trend traders; a break through the gap flips sentiment the other way.
Trading blueprint
| Element | Long idea (UG3M) | Short idea (DG3M) |
|---|---|---|
| Confirmation | Buy only on a close above C-2 high | Sell/short only on a close below C-2 low |
| Stop-loss | Inside the gap or below C-3 low (≈ 1 R) | Inside the gap or above C-3 high |
| Targets | 1.5–3 R, prior swing high, or measured move ≈ gap height | Mirror |
| Edge boosters | Volume ≥ 1.2× avg on breakout; rising 20-EMA; no overhead resistance | Volume surge; falling 20-EMA; no nearby support |
| Time filter | Scale out if < 0.5 R progress in 3-5 bars | Same |
Tight risk anchored to the gap lets even modest follow-through deliver healthy R-multiples.
Statistical tendencies (Bulkowski†)
| Pattern | Theory | Actual breakout bias | Freq. rank | 10-day move rank |
|---|---|---|---|---|
| UG3M | Bullish continuation | Downward 57 % – acts as reversal more often | 84 / 103 | 5 / 103 (big moves when it breaks) |
| DG3M | Bearish continuation | Upward 62 % – also flips direction | 89 / 103 | 26 / 103 |
†4.7 M U.S. daily candles.
Message: treat both patterns as set-ups, not signals—direction depends on the first close beyond Candle 2’s extreme.
Strengths
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Clear geometry – easy for screeners; rare false positives.
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Surgical stop level inside the gap → favourable R:R.
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When follow-through hits, post-breakout moves rank in the top decile for size.
Limitations & pitfalls
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Ultra-rare on liquid symbols; loosening rules kills edge.
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Raw bias is close to coin-flip; confirmation is mandatory.
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News gaps can leap over intended entries/stops.
Quick visual cheat-sheet
Upside variant (after rally) Downside variant (after slide)
🟩 long white C-1 🟥 long black C-1
↗ gap-up ↘ gap-down
🟩 long white C-2 🟥 long black C-2
↘ small red C-3 ↗ small green C-3
closes inside but closes inside but
does NOT fill gap does NOT fill gap
Entry → break above C-2 high Entry → break below C-2 low
Stop → inside gap Stop → inside gap
Summary
The Upside/Downside Gap Three Methods patterns are eye-catching gap plays whose third candle “tests” the hole without sealing it. History shows they reverse nearly as often as they follow through, so:
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Wait for a decisive close past Candle 2’s extreme – that’s the real trigger.
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Park your stop inside the gap, keeping initial risk (R) tight.
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Aim for 1.5–3 R, and bail fast if price stalls—the edge evaporates quickly.
Respect those confirmation and risk rules, blend volume & trend filters, and these rare gap trios can add a high-octane, low-risk punch to your trading arsenal. Rock on and manage that risk!