“There are times to buy, times to sell, and times to rest.”
Most candlestick patterns are reversal patterns; however there are periods of trends that represent rest. Once a pattern is recognized it suggests a direction for future price movement. Continuation patterns, found in candlestick charting, help with the decision-making process. Whatever the pattern may be a decision must be made, even if the decision is to do nothing at all.
It is very important to learn the continuation patterns in addition to the primary and secondary candlestick patterns. In some cases the difference between a reversal pattern and the continuation of a trend can be subtle. Candlestick analysis provides the insight needed to know how minor price variations can affect the direction of a trend and lead to an enhancement of profits.
Each week we will select a continuation pattern and break it down into detail with the description, pattern criteria, and pattern psychology from the list below.
The Upside Tasuki Gap is found in a rising trend. A white or green candle forms after gapping up from the previous white or green candle, as shown in the illustration below. The following day opens lower and closes lower than the previous day. If the gap is not filled then the Bulls maintained control and it is time to go long. If the gap is filled, then the bullish momentum has come to an end. The description of a Tasuki, according to the Japanese, is a “sash that holds up one’s sleeve.”
Criteria for Upside Tasuki Gap
- An uptrend is in progress. 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 closes below the previous open.
- The third day close does not fill the gap between the two white or green candles.
- The last two candles, which are opposite colors, are usually about the same size.
Pattern Psychology of the Upside Tasuki Gap
Explaining the Tasuki Gap is pretty simple. The Japanese place significance on gaps. When one appears in the middle of the trend and it is not able to fill itself on weakness the next day, the strength is still in the uptrend. The pullback day is now interpreted as a profit-taking day.
Continue to learn about more candlestick patterns to see how it can greatly improve your profits! Primary candlestick patterns should be understood first (such as the doji and hanging man patterns). Once you have a basic understanding of the primary signals, move onto the secondary candlestick signals and then eventually the continuation pattern such as this upside tasuki gap pattern.
