What Are Three Gap Ups and Downs?

A gap is an empty space on a chart when price opens much higher or lower than the previous close. Three Gap Ups means three consecutive sessions each opening above the previous session's high. Three Gap Downs are the opposite. This often signals a climax – the trend is overstretched and may be about to reverse.

How to Identify

Three gaps appear in a row in the same direction.

Trading volume usually jumps up, showing excitement and speculation.

Reversal candles such as small shooting stars or hammers may appear on the third gap.

Confirmation Candles

Shooting Star: A candle with a small body and a long upper shadow, appearing near a top. It shows that sellers have taken control.

Hammer: A candle with a small body and a long lower shadow, appearing near a bottom. It shows that buyers are stepping back in.

How to Trade

Wait for confirmation: Do not enter at the first sight of three gaps. Wait for a reversal candle like a doji, shooting star, hammer, or a strong opposite candle.

Place a stop loss: If short after three gap ups, put your stop loss just above the high of the third gap. If long after three gap downs, put it just below the low of the third gap.

Set a target: Price often fills gap areas, so the first gap is a reasonable target.

Real Example

A stock rises from 50 to 55, then gaps to 58, then to 62. After three gap ups, a shooting star appears with high volume. A bearish trader may sell short and target a pullback to 55 or 50.

Common Mistakes

Entering too early: Seeing three gaps and buying/selling immediately without confirming leads to losses if the old trend resumes.

Ignoring volume: Three gaps without big volume are not a strong reversal signal.

No stop loss: If price keeps moving with the old trend, you can suffer a huge loss.

Content is for reference only, not investment advice. Forex trading carries high risk.

Three Gap Ups and Downs – Reversal Climax Signals