subject: Trading Japanese Candlesticks: The Tasuki Gap Pattern [print this page] Learning how to identify the Tasuki Gap pattern provides traders a powerful trend continuation indicator.
Reliability
The Tasuki gap is considered a medium reliability, according to Bulkowski's Encyclopedia of Candlestick Charts, Tusaki gaps are 57% reliable. With an overall performance rank of 5 out of 103, Tasuki Gaps can provide excellent returns when traded properly.
The Significance of Gaps in Candlestick Charts
Rice Traders in Japan studied gaps in candlestick charts very closely, and determined this price action to be of high importance. Gaps that appear in the direction of the prevailing trend indicate that momentum remains intact. Unless the gap is filled during the next trading day, on higher than normal volume, a gap signifies trend continuation.
Unless the gap is filled, any price action contrary to the gap is viewed as profit taking by traders. This marks the famed "pullback entry" as it marks more profitable entry points.
Upside (Bullish) Tasuki Gap
Description
The Upside Tasuki Gap occurs in a strong uptrend, and is identified by two white candlesticks with large real bodies. The two white candlesticks are separated by a gap. A black candlestick forms on the third day, partially filling the gap. Price action on the third day should open within the middle 2/3 of the second days long real body.
A result of profit taking, price action on the third day is considered a simple correction. A move above the second days close would indicate a long entry point, with the expectation the bullish trend should continue.
The Tasuki Gap is invalidated in any instance where the gap between the first two candlesticks is closed.
Supporting Criteria
The real bodies of the last two candlesticks in the should be about the same size.
This simple pattern is quite similar to the Bullish Upside Gap Three Methods Pattern. .
The pattern should be validated on the fourth day in the form of a long white candlestick, a large gap up or a higher close.
Downside (Bearish) Tasuki Gap
The downside Tasuki Gap occurs during a strong downtrend. The formation unfolds on day 1 with a large bodied black candlestick, followed on day 2 with a similarly sized black candlestick that gaps away from day 1. Finally on day 3, the candlestick opens higher, and closed higher than the previous days open, but stays within the gap. If the gap is not filled, the bears remain in control and the expectation is for the downtrend to continue. A move below the gap (filling it), would be considered confirmation of the continued downtrend.
Supporting Criteria
A trading signal is given in the form of a black candlestick, a large gap up or a lower close on the next trading day
by: Steve Warshaw
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