Sanku (Three Gaps Pattern)
What is Sanku (Three Gaps Pattern)?
Sanku (Three Gaps pattern) is the Japanese word for a candlestick pattern that comprises of three individual gaps situated inside a clear cut trend. The candles — with gaps between them — might be successive, yet they needn't bother with to be. There might be several candles, then a gap, etc. The presence of the pattern recommends a trend might be approaching exhaustion and traders ought to be watching out for indications of a reversal.
A Sanku pattern can happen in a downtrend or an uptrend.
What Does Sanku (Three Gaps Pattern) Tell You?
The pattern shows exceptionally strong price action, however that may not be sustainable for a really long time. The three gaps higher are showing aggressive buying of the security. As the number of buyers left to buy begins to diminish, former buyers transform into merchants hoping to take profit and stay away from losses.
A Rising Three Gaps pattern must happen in an existing uptrend.
The Sanku pattern cautions that things might be getting overheated. It's anything but a definitive indication of a reversal. For a reversal to happen there should be a genuine price reversal. At the point when the third (highest) gap is filled, a few traders believe that to be a warning that a reversal to the downside is in progress. Filling the gap, in this case, would be the point at which the price dips under the whole third gap.
A similar concept applies when a Three Gaps pattern happens in a downtrend. It could demonstrate venders will before long be exhausted. At the point when the price climbs through the third gap, that could demonstrate the reversal is in progress.
The pattern is a short-term one, commonly covering several candles. The pattern doesn't be guaranteed to demonstrate a longer-term trend change, albeit sometimes it might when the Sanku appears as a climax top or base.
Instances of How to Use the Sanku (Three Gaps) Pattern
The Sanku pattern is made by a bull (up) candle, a gap higher, a bull candle, a gap higher, a bull candle, and afterward another gap higher and another candle.
Every one of those "candles" could comprise of various candles, albeit in fast moving markets it is regularly only a couple.
Even two gaps with large price moves between can signal things are approaching exhaustion.
For traders that are long and needing to lock in profits, the pattern signals them to trail their stop losses. Stop losses can be trailed up behind the recent candle low, or the low of the latest gap, for instance. Traders might even wish to trail them up behind an intraday support level.
At the point when the price dips under the latest gap higher, that could signal the tide is shifting. The price is starting to pull back. This might be an impermanent pullback or it might show a long-term top in the price. Which it will be is difficult to foresee, albeit the size and elation of the pattern is a decent indicator.
The more the price advances over the couple of days of the pattern, relative to what is normal, the greater the chance of a climax top which could be followed by a long-term decline in price. Climax tops are joined by extremely high volume, a lot greater than average.
A few traders might start short positions when a reversal starts. A stop loss could be put over the recent candle, or over the high of the whole pattern.
Candlestick patterns don't have profit targets. Some other exit strategy is required for locking in profit on trades in view of the pattern.
A Sanku pattern happened on the chart of Nvidia Corp. (NVDA). The price had previously been rising when the price hopped higher, and afterward continue to gap and rise on various occasions.
The price dipping under the third gap was a difficult situation for the buyers. It signaled a decent exit point on longs. In this case, a short trade might have likewise worked profitability.
The Difference Between the Sanku (Three Gaps) Pattern and Three White Soldiers
Three White Soldiers is a reversal pattern that happens after a downtrend when the price begins rising once more. Three large vertical candles show sentiment is shifting in the downtrend and a new uptrend might be in progress. A falling Three Gaps pattern happens during the downtrend.
Limitations of the Sanku (Three Gaps) Pattern
Not all Sanku patterns will be followed by a reversal. Successive small gaps can happen in uptrends (or downtrends) for long stretches. Exiting long situations in an uptrend in light of such patterns might mean exiting rashly and overlooking huge amount of cash as the price proceeds higher.
Accordingly, deciphering which three gap patterns are important is subjective. The greater the price moves and gaps included, the more important that pattern is.
Overall setting and outlook is likewise important. The Sanku pattern might bring about just a minor pullback, or a full trend reversal could follow.
The pattern doesn't have a profit target. A few different means of analysis is required to determine when to escape trades in light of the pattern.
Highlights
- The Falling Three Gaps pattern happens during an existing downtrend and is formed when there are three gaps lower isolated by declining candles.
- The pattern signals the trend might be approaching exhaustion. The most recent gap being filled by movement the other way is an indication of an expected reversal.
- The Rising Three Gaps pattern happens during an existing uptrend and is formed when there are three gaps higher isolated by rising candles.
- The gaps might be isolated by several candles, not just one.
