Three Gaps Down / Three Falling Windows
Reference values based on Bulkowski's "Encyclopedia of Chart Patterns". Data is primarily from U.S. markets and may differ for other markets.
A pattern featuring three consecutive downward gaps during a downtrend. One of the traditional Sakata methods, it indicates that selling fear has reached an extreme, signaling a potential bottom reversal. When a bullish candle appears after the third gap, the probability of a buying reversal increases.
Enter long when a bullish candle confirms after the third gap. For a more cautious approach, enter when price exceeds the reversal candle's high. Higher volume on the reversal candle increases reliability.
First target: project the combined range of the three gaps upward from the reversal candle's close. Second target: the upper edge of the first gap. The level where the first gap is filled is also a strong target from a gap-filling perspective.
Place a stop-loss slightly below the low of the candle that formed the third gap. If the lower edge of the third gap is clearly breached, the pattern is invalid; exit.
Volume typically increases progressively across the three gaps, especially surging at the third gap (selling climax). High volume on the reversal bullish candle enhances the buying reversal's reliability.