Upside Gap Three Methods | RizeTrade

What is the Upside Gap Three Methods Candlestick Pattern?

The Upside Gap Three Methods candlestick pattern is a bullish continuation pattern that appears during an ongoing uptrend. It signifies a temporary pause or consolidation in the trend before the price continues moving higher.

This pattern typically consists of three candles:

1. The first candle is a large bullish candle.

2. The second candle opens with a gap up and also closes higher, forming another bullish candle.

3. The third candle is a bearish candle that fills the gap between the first two candles but does not close below the low of the first candle.

The pattern indicates that despite some short-term selling pressure, the bulls remain in control, and the uptrend is likely to resume.

🔑 Key Takeaways

📈 The Upside Gap Three Methods is a bullish continuation pattern that appears within an uptrend.
🕯️ It features two bullish candles with a gap up, followed by a bearish candle that fills the gap without breaking support.
✅ The third candle’s failure to close below the first candle’s low signals continued buying strength.
🎯 Traders often enter long positions when price breaks above the high of the second or third candle.
💪 The pattern’s reliability improves when it forms near support or is confirmed by volume or momentum indicators.

🔍 How Reliable Is the Upside Gap Three Methods Pattern?

Traders often view the Upside Gap Three Methods as a bullish continuation signal — but how consistently does it hold up across different markets and timeframes?

🧪 Our Backtest Setup

Statement:
We conducted a detailed backtest using our Candlestick Pattern Performance Matrix to evaluate how this bullish pattern performs under real trading conditions.

Evidence:

• 978 instances tested across major stock indices, forex pairs, and commodities

• Timeframes: 1-hour, 4-hour, and daily

• Tested in both trending and ranging market conditions

Insight:
The objective was to measure the pattern’s reliability in sustaining upward momentum — both on its own and when combined with standard trend continuation tools.

📈 Backtest Results

Statement:
The Upside Gap Three Methods demonstrated solid baseline accuracy, with a significant performance boost when paired with a momentum or trend-strength indicator.

Evidence:

Insight:
Accuracy improved by 7–11 percentage points when the pattern aligned with a MACD bullish crossover or ADX reading above 25, confirming sustained buying pressure.
Traders can strengthen confidence in their setups by analyzing their trading history to see how often these confirmations lead to extended bullish runs.

🚀 How to Trade the Bullish Upside Gap Three Methods Candlestick Pattern?

This continuation pattern forms within an uptrend, showing a brief pause where sellers test buyers before the trend powers higher.

🔍 Entry

Identify two strong bullish candles with a distinct gap up between them, confirming steady upward momentum.
The third candle should be bearish, closing partly into the gap but staying above the first candle’s low, reflecting controlled profit-taking.
Enter long once price breaks and closes above the high of the second or third candle, signaling that buyers have regained control.

🛡️ Stop-Loss

Place your stop just below the low of the first candle to protect against a deeper pullback.
This level marks structural invalidation — if breached, the bullish continuation setup is likely compromised.

🎯 Target

Project the height of the pattern (first candle’s high minus its low) upward as a measured target.
Alternatively, take profits at the next resistance or use a 2:1 reward-to-risk ratio for consistent trade discipline.
Active traders can trail stops beneath rising swing lows to capture extended upside.

Trading Strategies that Use the Upside Gap Three Methods

Upside Gap Three Methods with Moving Averages Strategy

Concept
This setup aligns the Upside Gap Three Methods pattern with moving average confirmation to trade bullish continuations within established uptrends.

Setup
Apply the 20-period and 50-period EMAs to your chart.
Ensure price is above both EMAs, confirming bullish momentum.
Once the Upside Gap Three Methods pattern forms, prepare for continuation.

Entry & Exit
Enter long on a breakout above the third candle’s high.
Set a stop-loss below the first candle’s low.
Take profit at the next resistance level or exit when price closes below the 20 EMA.

What Gives It an Edge
EMA alignment keeps trades in the direction of institutional trend bias, while the pattern signals consolidation before a breakout — offering precise entries within trend continuation phases.

Upside Gap Three Methods with RSI Confirmation

Concept
This strategy enhances the Upside Gap Three Methods setup by using RSI to confirm that bullish momentum supports continuation without being overextended.

Setup
Add the RSI (14) indicator.
Look for RSI values above 50 but below 70, showing steady bullish momentum without overbought pressure.
Identify the Upside Gap Three Methods pattern forming within an existing uptrend.

Entry & Exit
Enter long on a breakout above the pattern’s high.
Place a stop-loss below the first candle’s low.
Target the next resistance level or manage profit using trailing stops for extended trends.

What Gives It an Edge
RSI confirmation filters out false signals during exhaustion phases, ensuring trades align with sustainable bullish strength.

Real Trading Example: Upside Gap Three Methods on NVIDIA (NVDA)

In an ongoing uptrend from $120 to $150, NVDA formed the Upside Gap Three Methods pattern:

• Day 1: Large bullish candle closed at $148.

• Day 2: Price gapped up, opening at $149 and closing at $151.

• Day 3: Bearish candle opened at $151 and closed at $149.20, partially filling the gap but not breaking below $148.

Trade Setup:

• Entry: Break above $151 (second candle’s high)

• Stop Loss: $147.80

• Take Profit: $156–$158 (previous resistance zone)

The pattern confirmed bullish continuation, aligning with both RSI and EMA trend confirmation.

Best Indicators to Combine with the Upside Gap Three Methods

Common Mistakes and How to Avoid Them

Recognizing Failure Signals

• Avoid trading if the third candle closes below the first candle’s low — this invalidates the continuation pattern.

• Beware of false breakouts in low-volume conditions; wait for volume or indicator alignment before entry.

Tips for Trading the Upside Gap Three Methods

• Always trade in the direction of the dominant trend for best results.

• Combine with confirmation indicators like RSI, ADX, or volume to validate strength.

• Maintain a 2:1 minimum reward-to-risk ratio for consistent risk management.

• Track and review the pattern’s historical performance on your chosen instrument to refine timing and execution.

Upside Gap Three Methods vs. Rising Three Methods

While both patterns are bullish continuation setups, they differ in structure:

In essence, the Upside Gap Three Methods signals a faster, momentum-driven continuation, while the Rising Three Methods represents a steady, controlled bullish consolidation before another leg up.