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Currently this code http://pastebin.com/As0exwZy is displaying 10 posts because I set it in the Reading settings. Now what I want is to display a advertisement(widgetize) every 3 posts... how can I do that?

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up vote 1 down vote accepted
$i = 0;
while (have_posts())

    // Output the post

    // Output an ad after each third post
    if ($i % 3 === 0)
        echo 'ad';

The % is called the modulus operator.

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