Downside Gap Three

The Downside Gap 3 candlestick pattern is very similar to the Downside Tasuki Gap pattern, with one minor difference.

The first candle in this 3 candle pattern is a full bodied bearish candle within a downtrend.

The second candle should gap down below the first candle, and price wicks for both candles can not overlap and touch each other. In other words, the gap must be empty.

The third and final candle is where this pattern differentiates itself with the Tasuki Gap pattern. The third candle is a bullish candle that opens within the body of the second candle, and then moves up to close within the body of the first candle. While the Tasuki Gap pattern’s final candle closes within the gap, this pattern closes within the body of the first candle, and thus completely closes the gap.

In theory the Downside Gap 3 pattern acts as a bearish continuation pattern, but Bulkowski’s testing reveals that it acts as a bullish reversal pattern 62% of the time.

Another downside to this candlestick pattern is the fact that it’s rare and hard to find. But price breakout to either side is decent enough to mark this pattern down for future reference.

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