Downside Tasuki Gap Candlestick Patterns Explained: What They Are & How To Trade Them

 

What Is a Downside Tasuki Gap Pattern?

A downside tasuki gap pattern is a 3-candlestick formation that may signal a bearish continuation.  It may appear during a downtrend and is made up of a large bearish candle, a gap down, and another large bearish candle, followed by a bullish candle that partially closes the gap between the first two.

 

It is the bearish version of the tasuki gap pattern, making it the opposite of the upside tasuki gap.  It is essentially an extension of the falling window pattern.  For both, the unfilled gap represents a make-or-break price band that could shape upcoming price action.

Of course, no candlestick pattern guarantees a particular outcome.  Instead, they offer clues as to what is going on in the market.

So the question is, what does a tasuki gap really tell you?

What Downside Tasuki Gap Patterns Mean

Like many candlestick patterns, the name itself doesn’t reveal much.

In Japanese, a tasuki is a type of sash used to hold up the sleeves of a kimono.  We have no idea how the two relate but are 99% sure they do in some way.

(If you know the true meaning, please leave it in the comments below).

In trading terms:

• During the first period, price continued the pre-existing downtrend.
• The second period opened with a gap down and continued driving downward.
• During the third period, price moved back up and closed somewhere in the middle of the gap.

This sets the stage for bearish continuation, as buying pressure was too weak to fill the gap completely.

How To Recognize Downside Tasuki Gap Candlestick Patterns

Traders are attracted to patterns partly because they are easy to spot.

However, it’s also easy to see things on the charts that aren’t truly there (or anticipate events that never come to fruition).  That’s one of the reasons why waiting for confirmation is so important.

Technically, a downside tasuki gap pattern must:

• Appear during a downtrend
• Begin with a bearish long candle
• Have a gap down after the first candle
• Have another bearish long candle after the gap
• End with a bullish long candle that partially fills the gap

In practicality though, many traders will make various exceptions.

• The first candle doesn’t necessarily have to be a long candle, as long as it is a candlestick that gives a strong bearish bias (such as a gravestone doji).
• The second candle doesn’t necessarily have to be a long candle, as long as it is bearish and does not fill the gap.
• The third candle doesn’t necessarily have to be a long candle, as long as it doesn’t fully fill the gap.
• The third candle doesn’t have to fill the gap at all, as long as it moves against trend.
• It can take multiple bullish candles to reach the gap, as long as all other criteria are met and the gap remains partially unfilled.

Depending on who you ask, any of these standards may be more or less important.  Moreover, some of these variations may be more properly classified as other continuation candlestick patterns, such as the falling window.

Remember, identifying the continuation itself is more important than labeling the formation.  That’s not to say these standards are completely unimportant (as we’ll touch on shortly).  It’s just to say that the implications are more important than the criteria.

In other words, you need to put it into context.

Where Downside Tasuki Gaps Fit in the Chart Narrative

The markets are often characterized as a battle between the bulls and the bears.

Downside tasuki gap patterns show that the bears pressed their advantage on candle one, continued between candles one and two, continued further through the end of candle two, until finally suffering a relatively minor setback on candle three.

On the chart, it looks like a momentary respite.

It might happen like this on a daily time frame:

Following a modest relief rally within a larger bear market, the first day sees a substantial move lower.  That downward movement continues into post and pre-market trading, and again into the second day.  On the third day, buyers step up in an attempt to fill the gap.  They get close but are unable to make it all the way back up to the first day’s close.

From here, the bulls know that if they don’t fill the gap soon they are probably in for more pain.

In the short-term, it amounts to a valiant (but largely unsuccessful) counterattack.

The question traders need to ask themselves is, “Do the bulls have enough left in the tank to retake the rest of the gap or will selling pressure overwhelm their efforts?”

To answer that question, you’ll need more than just an understanding of Japanese candlesticks and candlestick patterns.  You’ll want to analyze both within the context of greater chart patterns as well as trend and price levels.  You’ll also want to make use of your own chart markup and indicators.

Analyze the history of your preferred asset(s) with respect to tasuki gap patterns and apply it to your own trading style.

Now, you can test (and/or stretch) the criteria we mentioned above to find the most tradeable opportunities.  For example, you may find that downside tasuki gaps with hanging man third candles play out more reliably than those with other candlestick types.  Or, you may find something else entirely.

Here is where the story in the charts begins to come into focus.

This is what we call technical analysis.

How To Trade Downside Tasuki Gap Patterns

Bearish continuation points are great places to add to your short position or move your stop loss down.

Downside tasuki gap patterns serve as easy-to-spot signs of potential bearish continuation that may serve as a launch point for the next big leg down.

Generally, you can put more weight into multi-stick patterns than single candles.  They give you more information over a longer amount of time.  Still, it is considered unwise to trade based on candlestick patterns alone.  They rarely have extremely high hit rates by themselves.

You need additional points of confluence to shift the probabilities in your favor.

Some of the more important ones include:

• Volume – For bearish continuation, you typically want to see low trading volume on bullish moves.  That means low volume on the third candle of a downside tasuki gap may be a good omen.
• Price Formations – Bearish continuation patterns like the downside tasuki gap tend to perform better when there is thin (or non-existent) support in their way.  The further below and weaker the better.
• Matching Momentum – Oscillating indicators like the RSI or stochastics are commonly used to identify continuation by analyzing slope, percentile, and/or divergence.

The fewer such factors corroborating the continuation, the less confident you can be about it.

It would be difficult to form a comprehensive trading strategy around tasuki gap patterns (whether bullish or bearish).  There simply isn’t enough there to develop a strong edge.  Even with a great understanding of trading math, orders, psychology, risk management, options, and automation, you’d still have a hard time.

You’re much better off building your strategy around other tools then using continuation patterns as an additional point of confirmation.

Patterns like the tasuki gap are much better idea givers than trade makers.

Other Candlestick Pattern Types

The downside tasuki gap is but one of many candlestick patterns.

You’d be wise to get familiar with all of the other ones too.

• Abandoned Baby – Bearish/Bullish
• Counterattack Line – Bearish/Bullish
• Doji Star – Evening/Morning
• Engulfing – Bearish/Bullish
• Harami – Bearish/Bullish
• Harami Cross – Bearish/Bullish
• In Neck – Bearish/Bullish
• Mat Hold – Bearish/Bullish
• On Neck – Bearish/Bullish
• Star – Bearish/Bullish
• Three Inside – Down/Up
• Three Methods – Falling/Rising
• Three Outside – Down/Up
• Tweezer – Top/Bottom
• Window – Falling/Rising

Sure, there are quite a few of them.  But don’t let that intimidate you.

It’s unnecessary to memorize all the names and criteria for every pattern.  What’s more important is to learn the principles of price action and technical analysis.

In fact, you’re free to forget all of the names and specifications as long as you can look at a group of candlesticks and understand what they are trying to tell you.

Takeaways

To review:

Downside tasuki gaps are a type of candlestick pattern that signals a potential bearish continuation.  While not a guarantee, their appearance may indicate that market conditions are going to remain the same.  Thus, they can help you find winning trades.

Of course, there are other candlestick patterns that you should learn about.  And even so, the ability to recognize patterns is not enough to trade successfully on its own.

Nonetheless, you’ve now added one more tool to your toolkit.

Have questions or more information to add?  Contribute to the conversation in the comments below!  Or, if you know someone who could benefit from this post, share it with them.  You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.