• An Upside Tasuki Gap is a three-candle bullish continuation pattern from Japanese candlestick analysis that shows an uptrend is likely to continue after a brief pullback.
– The pattern requires: a strong upward candle, a gap up on the next candle, and a third (bearish) candle that cannot close the gap. The inability of bears to fill the gap is the bullish signal.
– Traders use the pattern to enter long positions (several entry methods), place stops below logical lows, and set profit targets using risk-reward rules or technical resistance.
– Confirm the pattern with trend context, volume behavior, and other indicators to reduce false signals.
What is an Upside Tasuki Gap?
The Upside Tasuki Gap (also called Bullish Tasuki Gap) is a three-bar candlestick formation that appears during a bullish trend. It consists of:
1. A strong bullish candle (often long-bodied).
2. A second bullish candle that opens above the previous candle’s close, creating a price gap higher.
3. A third candle that is bearish (fills some of the recent gains) but does not close the gap between the first two candles.
Interpretation: the gap up shows buyer strength; the small pullback (third candle) is a short consolidation or attempt by sellers to close the gap. Because sellers fail to fully close it, the structure suggests bulls remain in control and the uptrend will likely resume.
Anatomy and how it forms
– Candle 1: Bullish impulse that establishes momentum.
– Candle 2: Another bullish candle that opens above Candle 1’s close (the gap), extending the move.
– Candle 3: A bearish candle retraces part of Candle 2 (and possibly Candle 1), but the low fails to drop below the low that would fill the gap between Candle 1 and Candle 2.
Important variations and notes:
– The pattern can form on any timeframe (daily, intraday, weekly). Reliability tends to be higher on longer timeframes.
– Volume: ideally, the gap should occur on increased volume and the pullback should happen on lighter volume — this supports continuation.
– The pattern is a short-term continuation signal; context (primary trend, nearby resistance) matters.
How the Upside Tasuki Gap fits into the broader gap lifecycle
In classic gap analysis, bullish gaps can be categorized as breakaway, runaway (continuation), and exhaustion. The Tasuki Gap commonly appears during the trend (as a continuation sign) rather than at a trend reversal point.
Practical steps for trading the Upside Tasuki Gap
Below is a practical, step-by-step trading process. Treat it as a framework — adapt to your trading plan, timeframes, and risk tolerance.
1) Confirm the trend and context
• Ensure price is in a well-defined uptrend (higher highs, higher lows, rising moving averages).
• Avoid taking continuation signals at major resistance without extra confirmation.
2) Identify a valid Upside Tasuki Gap
• Candle A: bullish candle.
• Candle B: bullish candle that opens above Candle A’s close (gap up).
• Candle C: bearish candle that moves lower but fails to close the gap between A and B.
3) Check volume and momentum
• Prefer higher-than-average volume on the gap (Candle B) or the initial move.
• Prefer lighter volume on the bearish pullback (Candle C).
• Optional: supplement with momentum indicators (RSI, MACD) to confirm bullish bias.
4) Decide entry method (choose one that fits your risk appetite)
• Aggressive entry: buy at the close of Candle C (expect continuation).
• Confirmation entry: place a buy-stop a few ticks/pips/cent above Candle B’s high — you only enter if the uptrend resumes.
• Pullback entry (conservative): wait for a subsequent retracement to a nearby support level or a moving average.
5) Place a stop-loss
Typical stop placements:
• Conservative stop: below the low of Candle A (the first candle of the pattern) or below the gap low — gives more room but less chance of being stopped out by noise.
• Tighter stop: below the low of Candle C (the pullback candle) — higher chance of being stopped by noise but smaller risk per trade.
• Use position sizing to keep dollar risk per trade within limits.
6) Set targets and manage the trade
• Use a fixed risk-reward ratio (e.g., 1:2 or 1:3) or target based on the next resistance, recent swing high, measured move, or technical projection.
• Consider scaling out (sell a portion at first target, move stop to breakeven, hold remainder).
• Trail stop under higher lows or via an ATR-based stop.
7) Confirm and adapt
• If price quickly closes the gap (i.e., fills it), the pattern fails — consider exiting or tightening stops.
• Combine with broader market indicators (sector strength, market internals) for extra confidence.
Concrete example (hypothetical)
– Instrument: ETF XYZ, daily chart.
– Candle A: strong green candle that closed at $100 (establishing bullish momentum).
– Candle B: opens at $104 (gap up) and closes at $106.
– Candle C: red candle that pulls back to close at $103, but its low is $102 — it does not close the $100–$104 gap.
Entry options:
– Aggressive: buy at close of Candle C = $103.
– Confirmation: place buy stop at $106.10 (just above Candle B high); enter when price trades higher.
Stop placement:
– Tighter stop: below Candle C low at $101.90 (risk from aggressive entry = $103 − $101.90 = $1.10 per share).
– Conservative stop: below Candle A low (say $98.90) if you want more room.
Profit target examples:
– At 2:1 RR from tight stop: target = $103 + $2.20 = $105.20 (if entering at $103 with $1.10 risk).
– Alternatively, aim toward next technical resistance around $110 or use trailing stop if trend continues.
Position sizing:
– Risk per trade = Account size × % risk per trade (e.g., 1%).
– Position size = Risk per trade / (entry price − stop price).
Example: $100,000 account, 1% risk = $1,000. If risk per share = $1.10, buy 909 shares (rounded) = $1,000 / $1.10.
Checklist before taking the trade
– Is the primary trend bullish on the chosen timeframe?
– Is the gap genuine (no overlapping price execution that negates the gap)?
– Was volume supportive on the gap and light on pullback?
– Are there no major resistance levels directly above that would likely cap the move?
– Did the third candle fail to fill the gap?
– Does the proposed stop location match your volatility tolerance (ATR considerations)?
Confirmation and filters to reduce false signals
– Use higher-timeframe trend confirmation (e.g., daily pattern confirmed on weekly).
– Volume rule: gap should occur on above-average volume; pullback on below-average.
– Favor patterns formed after a measured runup (not after a parabolic spike where exhaustion and reversal are more likely).
– Combine with moving average support (e.g., price above 20- or 50-period MA).
– Avoid trades right before key economic news or earnings that can blow gaps out of context.
Limitations and common pitfalls
– The pattern is a short-term continuation signal and can fail; gaps are frequently tested and sometimes filled.
– Low-volume gaps and pullbacks are less reliable.
– In choppy markets, many fake gaps appear; trend context is crucial.
– Stop placement is a tradeoff between distance (noise protection) and capital efficiency.
Pattern variants and related formations
– Downside Tasuki Gap: bearish mirror (gap down in a downtrend followed by a small bullish candle that does not fill the gap).
– Other gap types: breakaway, runaway (continuation), exhaustion — knowing the gap type helps interpret risk.
– Tasuki Gap can appear in clusters with other bullish gap signals; convergence of signals improves reliability.
Practical trading plan template (quick)
1. Timeframe: daily
2. Instrument: XYZ
3. Signal: Upside Tasuki Gap confirmed (Candle C failed to close the gap)
4. Entry: buy at close of Candle C (or buy stop above Candle B high)
5. Stop: below Candle C low (or below Candle A low for conservative)
6. Target: 2× risk or next resistance; trail using N-day low or ATR
7. Position sizing: risk 1% of account per trade
8. Volume confirmation: gap on high volume, pullback on low volume
9. News filter: no major scheduled events during trade window
Further reading and references
– Investopedia — Upside Tasuki Gap (overview and examples)
– StockCharts School — Tasuki Gap (candlestick patterns and interpretation):
– Steve Nison, “Japanese Candlestick Charting Techniques” — foundational text on Japanese candlesticks and gap patterns.
Final note
The Upside Tasuki Gap is a straightforward, well-defined continuation pattern that can be useful when combined with trend context, volume analysis, and disciplined risk management. Treat it as one element in a comprehensive trading plan rather than a standalone trade signal.