What it means
Candlestick charts show the open, high, low and close for each trading period as a candle. A rising candle closes above its open and a falling candle closes below it.
The pattern comes from Japanese charting, and Tasuki is a Japanese word for a sash or cord. The upside Tasuki gap appears in an uptrend and has three candles.
The first is a long rising candle, and the second is another rising candle that opens above the first candle's close, leaving a gap. The third is a falling candle that opens inside the second candle's body and closes inside the gap, but not low enough to fill it.
The idea is that the gap shows strong demand, and the pullback is only a pause. Sellers pushed the price down on the third candle, yet they could not erase the gap, so buyers held the line.
Traders read this as a sign that the uptrend has not been broken. Many traders use the bottom of the gap as a reference point.
If the price falls below it later, the pattern has failed, and a protective stop order is often placed just under that level. This gives a clear place to exit if the view is wrong and keeps the loss small.
The pattern is not a guarantee. It works better in a clear trend and with confirmation, such as rising volume or other indicators.
It is also a pattern rather than a law, so results vary by market and time frame. Finance professionals use patterns like this as a prompt for closer analysis.
Technical analysis is less accepted than the study of company accounts, and sceptics point out that patterns can be seen after the event. A sensible approach is to use the pattern alongside other information and to manage the risk of each trade.
In practice
Real-world examples.
Example
A trader watches a shipping company's shares rise from $50 to $54, then jump to $55 at the next open and close at $58. The following day the shares fall to $54.60 but do not close the gap. She buys, placing a stop just under $54.
Example
An investor in a technology company sees the same pattern on a weekly chart. He treats it as support for adding to his holding, but only after checking that the company's earnings outlook is still positive. He keeps the position size small.
Example
A fund's analyst compares the pattern with the opposite signal in a downtrend. When a similar pattern forms in a falling stock, she sees it as a sign that the decline may continue. Her notes record the date and price levels so the pattern can be reviewed later.
Formula
Calculation
The pattern is confirmed when:
Candle 2 open > Candle 1 close (gap up)
Candle 3 opens inside Candle 2's body and closes inside the gap, above Candle 1's close
Suppose candle 1 opens at $50 and closes at $54. Candle 2 opens at $55 and closes at $58, so the gap runs from $54 to $55, which is 55 - 54 = $1 wide. Candle 3 is a falling candle that opens at $57, inside candle 2's body of $55 to $58, and closes at $54.60, inside the gap and above $54. The gap is not filled, so the pattern is valid. A trader might place a stop order at $53.90, just below the bottom of the gap.Case study
Seen in the real world.
Marlow Trading is an illustrative, fictional proprietary desk that tests chart patterns against past data. Its analyst, Priya, examined 200 cases of the upside Tasuki gap in a basket of stocks, together with a control group of ordinary rising days.
She found that the pattern was followed by gains about as often as the control group, which meant it had little edge on its own. Her results improved only when she required the stock to be above its 50-day average price and volume to be rising.
The desk decided to use the pattern only as a supporting signal. The illustrative lesson is that a pattern can be useful as a filter, but it needs testing and should not be trusted blindly.
Watch out
Common mistakes.
- Treating the pattern as a prediction of price rises, when it is only a sign that buyers may still be in control.
- Using it in sideways or falling markets, when it is designed as a continuation signal inside an uptrend.
- Ignoring a close below the gap, when this is the signal that the pattern has failed.
Questions
People also ask.
What makes it different from the upside gap three methods?
In the Tasuki pattern the third candle fails to close the gap, while in the three methods pattern the third candle closes it.
What does the name Tasuki mean?
It is a Japanese word for a sash or cord used to tie up sleeves, and it was applied to the pattern by early candlestick traders.
Is there a downside version?
Yes, the downside Tasuki gap is the mirror image in a downtrend and suggests the fall may continue.
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