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

 

What Is an Upside Tasuki Gap Pattern?

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

It is the bullish version of the tasuki gap pattern, making it the opposite of the downside tasuki gap.  It is essentially an extension of the rising 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 Upside 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 uptrend.
• The second period opened with a gap up and continued driving upward.
• During the third period, price moved back down and closed somewhere in the middle of the gap.

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

How To Recognize Upside 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, an upside tasuki gap pattern must:

• Appear during an uptrend
• Begin with a bullish long candle
• Have a gap up after the first candle
• Have another bullish long candle after the gap
• End with a bearish 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 bullish bias (such as a gravestone doji).
• The second candle doesn’t necessarily have to be a long candle, as long as it is bullish 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 bearish 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 rising 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 Upside Tasuki Gaps Fit in the Chart Narrative

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

Upside tasuki gap patterns show that the bulls 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 bull market, the first day sees a substantial move higher.  That upward movement continues into post and pre-market trading, and again into the second day.  On the third day, sellers step up in an attempt to fill the gap.  They get close but are unable to make it all the way back down to the first day’s close.

From here, the bears 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 bears have enough left in the tank to retake the rest of the gap or will buying 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 upside tasuki gaps with inverted hammer 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 Upside Tasuki Gap Patterns

Bullish continuation points are great places to add to your long position or move your stop loss up.

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

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 bullish continuation, you typically want to see low trading volume on bearish moves.  That means low volume on the third candle of an upside tasuki gap may be a good omen.
• Price Formations – Bullish continuation patterns like the upside tasuki gap tend to perform better when there is thin (or non-existent) resistance in their way.  The further above 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 upside 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:

Upside tasuki gaps are a type of candlestick pattern that signals a potential bullish 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.