The upside gap three method is a candlestick continuation pattern that is similar to the upside tasuki gap, however the upside tasuki gap pattern is not filled on the third day. The upside gap three method occurs in a strong uptrend and it is characterized by two long white candlesticks with a gap upward in between these two candles during an uptrend. The third day of this candlestick pattern is a black candlestick which closes the gap between the first two candles.

In other words, in order to qualify as an upside gap three method the following must occur:

First, as stated previously, the market must be in an uptrend. Second, there must be two long white candlesticks with a gap between them. Third, there must be a black candlestick on the third day that opens within the body of the second day. Lastly, the third black candlestick must fill the gap between the first two days. (Again, the difference between the upside tasuki gap and the upside gap three method)

What does this signal indicate is occurring in the markets?
This pattern indicates a strong bullish market (see bull markets) and the bullish market continues for another day with a gap in the direction of the uptrend. Gaps are eventually filled and the third day opens into the body of the second day doing just that. This fact that this gap closes supports the current uptrend and investors are led to believe that the profit taking is just a pullback and the trend should resume once the gap is filled and is satisfied.

This pattern requires confirmation and this confirmation can occur in the form of a large gap up or a higher close, or in the form of a white candlestick.

This is only one of many continuation patterns that are used in Japanese Candlesticks. Japanese Candlesticks are the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals, and you have learned how to read stock charts continue to expand your expertise by learning the various secondary Candlestick Patterns. Combine these with your favorite technical analysis indicators, such as the moving average, and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds.

Please continue your education and read about the bullish and bearish separating lines.