Alternate loop output every three posts (within the same original loop)

You can do this with much less code, using the modulo operator.

The modulo sign in PHP is %, and works like this: it gives you the remainder of a division, for example

5 % 2 = 1
9 % 3 = 0
11 % 7 = 4

So your code would look like this (I think you have a typo in your question, in the “First Three” the second block should be labeled small right. If I am wrong here, just edit the code below.)

For a better Overview, I start my Counter at 1, not as usual at 0, because it is easier to see which iteration is targeted by the conditionals. I also increase the counter at the last conditional – be sure you do not increment it twice!

So, before the Loop:

$counter = 1;

Then insinde the Loop:

<?php
    if ( $counter % 3 == 1 ) { // use this line for the first and the fourth iteration
        echo '<div class="layer">';
    }
        if ( $counter % 6 == 1 ) { // use this line for the first iteration only
            echo '<div class="large left">';
        } else if ( $counter % 6 == 2 ) { // use this line for the second iteration only
            echo '<div class="small right">';
        } else if ( $counter % 6 == 4 ) { // use this line for the fourth iteration only
            echo '<div class="small left">';
        } else if ( $counter % 6 == 5 ) { // use this line for the fifth iteration only
            echo '<div class="large right">';
        }
        //nothing to do for the sixth and the third iteration
        // the item is the same all the time
?>
        <div class="item">
            <?php the_title(); ?>
            <?php the_content(); ?>
        </div><!--item-->
<?php
        if ( $counter % 6 == 1 || $counter % 6 == 3 || $counter % 6 == 5 || $counter % 6 == 0 ) { // use this line everytime you close a subblock
            echo '</div>';
        }
    if ( $counter++ % 3 == 0 ) { // use this line for the third and the sixth iteration
        echo '</div>';
    }
?>