In Japanese Candlestick trading, the Tasuki gap indicates that the current trend has plenty of momentum and potential left.

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 Importance of Gaps

Japanese traders consider gaps to be very significant. When one appears in the direction of the prevailing trend, and is not filled on strong volume the next day, the momentum remains positively in the direction of the trend. Any move contrary to the gap, that does not fill the gap, should be considered profit taking, and hence a good entry point if you wish to trade in the direction of the prevailing trend.

Upside (Bullish) Tasuki Gap

Description

Identified by the two large bodied, white candlesticks, with a gap between them. This pattern occurs during a strong uptrend. On the third day, a black candlestick forms, partially closing the gap between the first two white sticks. The opening of the third day should occur within the middle 2/3 of the second days long white candlestick.

This third day is considered a correction day, a result of profit taking, and the expectation is for the trend to continue on the next trading day. A breakout above the second white candlestick’s close would be a buy indicator.

Should the gap between the first and second candlesticks become filled, the Tasuki Gap will have been invalidated, and other trading considerations should be made.

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