# Upside/Downside Gap Three Methods: What They are, How They Work

![Person on a computer looking at a graph of stock market data](https://www.investopedia.com/thmb/t5XMZmvU_nhwjyhlVH_0GKuOG64=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/UpsideDownsidejpg-3cd043ae23b04964bfcc434d6ba132e3.jpg)

*— d3sign / Getty Images*

## What Is the Upside/Downside Gap Three Methods?

The Gap Three Methods is a three-bar Japanese [candlestick](https://www.investopedia.com/terms/c/candlestick.asp) pattern that indicates a continuation of the current trend. It is a variant of the [Upside Tasuki Gap](https://www.investopedia.com/terms/u/upside-tasuki-gap.asp) pattern, but the third candle completely 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.

## Breaking Down the Upside/Downside Gap Three Methods

The Upside Gap Three methods is a [bullish](https://www.investopedia.com/terms/b/bull.asp) continuation pattern with the following characteristics:

1.  The market is in an [uptrend](https://www.investopedia.com/terms/u/uptrend.asp).
2.  The first bar is a white candle with a long [real body](https://www.investopedia.com/terms/r/realbody.asp).
3.  The second bar is a white candle with a long real body where the [shadows](https://www.investopedia.com/terms/s/shadow.asp) over both candles don’t overlap.
4.  The third bar 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.

![One](https://www.investopedia.com/thmb/NMpl1OMBpwHlXcwu7hdMHwC0r10=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Upside_DownsideGapThreeMethods1-dd9401bf72c148ec8efd62cab4cd3494.png)

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The Downside Gap Three Methods is a [bearish](https://www.investopedia.com/terms/b/bear.asp) continuation pattern with the following characteristics:

1.  The market is in a [downtrend](https://www.investopedia.com/terms/d/downtrend.asp).
2.  The first bar is a black candle with a long real body.
3.  The second bar is a black candle with a long real body where the shadows over both candles don’t overlap.
4.  The third bar 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.

![Two](https://www.investopedia.com/thmb/fTbO1vOB7uoxEM9jDXirZQtuc8A=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Upside_DownsideGapThreeMethods2-56e2f9d1c1a144b89d91c7dec69e97d8.png)

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The Upside/Downside Gap Three Methods is a rare but reasonably reliable pattern. When identified, traders should apply other forms of [technical analysis](https://www.investopedia.com/articles/active-trading/102914/technical-analysis-strategies-beginners.asp) to seek confirmation, such as price action and technical indicators.

## Upside Gap Three Methods Trader Psychology

Suppose the market is engaged in a current uptrend. The rally continues on the first candle in a healthy session with the close well above the open, generating a wide range real body. This increases the bull's confidence, while putting bears on the defensive. Their caution is justified because the second candle opens with a gap up and healthy buying pressure that lifts the security to a new high. [Profit-taking](https://www.investopedia.com/terms/p/profittaking.asp) causes the third candle to close the gap between the first and second candles. The bulls assume the uptrend will resume now that the gap has filled.

## Downside Gap Three Methods Trader Psychology

Now suppose the market is engaged in a current downtrend. The decline continues on the first candle in a weak session with the close well below the open, generating a wide range real body. This increases the bear's confidence, while putting bulls on the defensive. Their caution is justified because the second candle opens with a down gap and active selling pressure that drops the security to a new low. [Short covering](https://www.investopedia.com/terms/s/shortcovering.asp) causes the third candle to close the gap between the first and second candles. The bears assume the downtrend will resume now that the gap has filled.

## Practical Example of Trading a Gap Three Methods Pattern

Paul has spotted an Upside Gap Three Methods pattern on the chart of Cellectis S.A. and wants to use the formation to enter a long position in the direction of the trend and set his risk parameters. He could execute a trade at the closing price of the third candle at $16.39 and place a [stop-loss order](https://www.investopedia.com/terms/s/stop-lossorder.asp) below the first candle’s low at $15.75. David may decide to take a more conservative approach and enter a [buy stop order](https://www.investopedia.com/terms/b/buystoporder.asp) slightly above the second candle’s high at $16.95, waiting for confirmation that the uptrend has resumed. He could then use the low of the third candle at $16.27 as a stop-loss point. 

![Image](https://www.investopedia.com/thmb/5pPuYlbVFfFCWiweycfIp5CFiVw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Upside_Downside_Gap_Three_Methods_Jul_2020-01-e46251b456fa457fa100acbb892506e7.jpg)

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