Description
The downside tasuki gap is another continuation pattern and it is found during a declining trend. When identifying a downside tasuki gap pattern you will see a black or red candle form after it gaps down from the previous black or red candle. The following day opens higher and closes higher than the previous day’s open. If the gap is not filled then the bears are still in control and many investors opt to short. If the gap is filled then that means that the bearish momentum has come to an end. When utilizing candlestick patterns it is important to note that you are mostly likely to come across the upside tasuki pattern rather than the downside tasuki pattern.
Criteria for Identifying the Downside Tasuki Pattern:
- A downtrend is in progress and a gap occurs between two candles of the same color.
- The color of the first two candles is the same as the prevailing trend.
- On the third day an opposite color candlestick opens within the previous candle, and it closes below the previous open.
- The third day close does not fill the gap between the two candles.
- The last two candles are opposite colors and are typically about the same size.
Pattern Psychology
When identifying the downside tasuki pattern, just the opposite is true of the upward tasuki gap. The Japanese put significance into gaps and when one appears in the middle of the trend and it is not able to fill itself on strength the following day, the momentum is still in the downtrend. The bounce-up day is typically interpreted as a short-covering day. After the short covering disappears then the selling continues.
Recognizing and understanding the psychology that forms the major candlestick patterns, the reversal patterns and the continuation patterns, will provide completely new insights for investors to understand optimal times to buy and sell. Japanese rice traders realized that prices do not move based on fundamentals but instead that they move based on the investor perception of those fundamentals.
When you learn how to utilize the candlestick signals correctly you now have the knowledge to improve your trading techniques for those trading entities you want to trade. You do not have to depend on canned programs that sometimes work and sometimes don’t work and you do not have to buy or sell stock recommendations blindly based on a research analyst’s recommendation.
