Tasuki Gap Patterns Guideline (PDF)
Tasuki Gap Patterns Guideline
What is the Tasuki Gap Candlestick Pattern?
Tasuki Gap pattern is a formation of 3 successive candlesticks that indicate that the current trend may continue. In other words, it’s a continuation Pattern. There is an Up or Down gap between the 1st and the 2nd candles that must be offset by the 3rd candle. Furthermore, the 1st and the 2nd candles follow the direction of each other whereas the 3rd candle always goes against them. In fact, the Tasuki Gap Pattern could form many times during a strong trend where volume is high and price spread is also high. However, the more time the pattern appears, the stronger the trend. Also, the wider the gap between the 1st and the 2nd candles, the stronger the trend.
UPSIDE Tasuki Gap pattern
The UPSIDE Tasuki Gap Pattern also referred to as the Upward Tasuki Gap Pattern is a Bullish pattern that appears only during uptrends.
For one thing, the Upside Tasuki Gap contains 3 candles, the 1st 2 candles are Bullish and the 3rd candle is Bearish.
The 1st candle is a long candle that gets the price up, whereas the second candle opens higher than the highest point of the 1st candle and closes even higher. Leaving a gap between the 2 candles that is offset by the 3rd Bearish Candle. It can be a long candle or a short candle, the important thing is that it covers the gap between the 1st 2 candles. But it could never be a DOJI, and it typically closes below the highest point of the 1st candle. Yet, exceptions may occur.
Furthermore, the wider the gap the stronger the uptrend. The upside Tasuki Gap pattern should be confirmed, the candles following the pattern must close above the closing price of the 3rd candle.
This pattern tells us that the market sentiment is bullish and that investors are optimistic about the future price of the asset. Regardless, the 3rd candle is Bearish because the traders are a little worried that the asset may become overbought and a reversal may occur. However, this fear is offset by a Bullish 4th candle that forms above the 3rd candle.
Upward pattern illustration
As follows, is the Chart of Microsoft Inc. during a short period of almost 2 months. The Upward Tasuki Gap Pattern appeared by the end of September to announce that the uptrend is going to continue. The prices kept rising, going from 198$ per share up to 226$ per share, an increase of approximately 15%. The Pattern was accurate in predicting the trend. Yet, the uptrend didn’t last long.
DOWNSIDE Tasuki Gap pattern
The DOWNSIDE Tasuki Gap Pattern also referred to as the Downward Tasuki Gap Pattern is a Bearish pattern that appears only during downtrends. Similar to the UPSIDE Tasuki Pattern, the DOWNSIDE Tasuki Pattern contains 3 successive candles. The 1st candle is a long bearish candle that gets the price down. Then comes the 2nd candle which is also bearish. The 2nd candle’s size doesn’t matter as long as it leaves a gap below the 1st candle. Then comes the 3rd candle. It must be bullish, and it fills the gap left between the 2 candles. The size of the 3rd candle doesn’t matter either as long as it does the job, the important thing is that it mustn’t be a DOJI.
However, the Downside Tasuki Pattern doesn’t indicate how low can price get, it only tells us that the trend is really powerful. On the other hand, the Bear fully control the market, as they are selling no matter what, trying to reduce losses as they think that the downtrend will continue. Thus, prices will keep falling more and more. The 3rd candle is always bullish as the bulls attempt to force the prices to go up. Yet, they fail. To be sure that the pattern is accurate, look for a 4th candle which must close below the close of the 3rd candle.
Downward pattern illustration
As follows, is the price chart of “SOCIETE GENERALE”, a French bank. The Downward Tasuki Gap Pattern appeared 3 times during the period going from March to July. The price of the asset was in a towering uptrend when the Bearish pattern 1st appeared. At that time, The bears tried to reduce the price, but they ended up failing. As the power of the Bulls was much stronger, the prices kept on rising. However, once the price of the stock reached the top, the pattern appeared twice in less than 2 weeks. Confirming the start of a downtrend as the 4th candle of each pattern closed lower than the 3rd candle.
How to trade with the Tasuki Gap formation?
The following strategy that we’re going to apply now works on every asset in any market. No matter the time frame, you can trade on a short-term basis or a long-term basis. Yet, we advise you to trade on a time interval between 1 to 3 months to have an accurate prediction and astonishing results.
Trading based on the Upside Tasuki Gap pattern
When the upside Tasuki pattern appears, it’s advised to enter a long position to lock in the highest possible profit.
There are 2 possible entry points, one has a high risk and the other has a low risk. Of course, the high risk could generate a much higher profit than the low-risk point.
- High-Risk entry point: You can enter the market during the formation of the 3rd candle while assuming that the uptrend will continue. And without getting confirmation from the 4th
- Low-Risk entry point: You can enter the market when the price of the 4th goes above the high or close of the 3rd
As follows, is the price chart of the Gold. The pattern has appeared during an uptrend to indicate the continuation of the trend. Furthermore, the 4th candle confirms the pattern.
A trader can enter a long position either during the formation of the 3rd candle or he can wait for the price of the 4th candle to go above the close of the 3rd candle. It all depends on the investors’ risk tolerance.
Trading based on the Downside Tasuki Gap pattern
When the downside Tasuki pattern appears, it’s advised to enter a short position or to put a stop-loss order immediately.
There are 2 possible entry points for a short-position trader, one has a high risk and the other has a low risk. Of course, the high risk could generate a much higher profit than the low-risk point.
- High-Risk entry point: You can enter the market during the formation of the 3rd candle while assuming that the downtrend will continue. And without getting confirmation from the 4th
- Low-Risk entry point: You can enter the market when the price of the 4th goes below the low or open of the 3rd candle
As an example, we’re going to analyze the price chart of the “iShares Russell”. The pattern has appeared during a Downtrend which indicates that prices may continue to fall. The 4th candle confirmed that the downtrend will continue.
A risk-loving trader may enter the market during the formation of the 3rd candle. In other words, when the price goes to the lowest possible point of the day. However, a risk-averse trader may wait for the 4th candle, where the price goes below the low or open of the 3rd to enter the market.
- Tasuki Gap Candlestick is a continuation pattern.
- There are 2 kinds of Tasuki patterns: bearish and bullish.
- The 2 first candles must follow each other while the 3rd candle goes against them.
- The 4th candle should be like the 1st 2 candles, else the trend won’t be confirmed.