Side 3 Gaps is a candlestick chart pattern which helps traders in determining trend reversal before it happens. The three gaps must always be independent and shall represent a clear current trend which is either going up or going down. It signals traders about a reversal in trend. 

What is Side 3 Gaps?

How to analyze chart using Side 3 Gaps?

Type – Leading

Side 3 Gaps (Known as Sanku in Japanese) is a Japanese candlestick chart pattern that consists of three individual gaps which are found in an already prevailing trend. The candlesticks which have gaps between them can be consecutive but it’s not a necessity. There can be several candles in a queue and then there can be a gap and so on. The appearance of the pattern indicates that the trend is near its exhaustion and traders may think about signs of reversals. 

The side 3 gaps have two different variants i.e Upside Gap and Downside Gap. Let’s try to understand both. 

The Upside Gap three methods is a bullish continuation pattern which has the following characteristics:- 

The market shall be in an uptrend or a bullish trend. 

The first bar is the white candle which has a long real body. 

The second bar is a white candle which has a long real body. The shadows behind both candles don’t overlap. 

The third bar is a black candle which has an opening within the real body of the first candle. And it closes within the real body of the second candle. 

Image 1:- 

Source:- https://www.investopedia.com/terms/u/upsidedownside-gap-three-methods.asp

The Downside Gap Three Methods

The Downside Gap of the Three Methods is a bearish continuation pattern. It contains the following characteristics:- 

The market shall be in a downtrend or a bearish trend. 

The first bar is a black candle which has a long real body. 

The second bar is a black candle which has a long real body. The shadows over both the candles don’t overlap. 

The third bar has a white candle which has an opening within the real body of the second candle. It has a close within the real body of the first candle.  

 Image 2:- 

Image Source:- https://www.investopedia.com/terms/u/upsidedownside-gap-three-methods.asp

How to analyze charts using Side 3 Gaps?

Now let’s analyse the chart using the Side 3 Gaps method. 

Upside Gap Three Methods Pattern 

Let’s see an example of the upside gap three methods pattern 

Chart 1:- 

Image Source:- https://howtotrade.com/chart-patterns/upside-and-downside-gap-three-methods/

The above EUR/USD daily chart is an example of the upside gap three methods. The pattern of upside gap three methods occur in this chart during an uptrend. You can see that the first two candles are bullish and have a price gap between them. Whereas the third candle is bearish and can close the gap. 

When this entire scenario happens, the currency pair’s price increases and the bullish trend continues. 

Downside Gap Three Methods Pattern 

Let’s see an example of a downside gap three methods pattern. 

Chart 2:- 

Image Source:- https://howtotrade.com/chart-patterns/upside-and-downside-gap-three-methods/

The above USD/SwissFranc chart is an example of the downside gap between the three methods. You can find this pattern in this chart during a downtrend. It has two bearish candlesticks and a gap appears between the first and second candles. After this, you can find that the third candle is bullish and fully closes the price gap.

When this entire scenario happens, the pattern shows confirmation and the bearish trend continues.