Upside Tasuki Gap

The upside tasuki gap is a rare three-bar bullish continuation Japanese candlestick pattern that suggests near-term volatility is likely.

Crypto and forex traders who rely on history instead of luck should avoid these patterns due to insufficient daily data to determine statistically significant trading strategies.

If you’re a stock market technical analyst, you might be interested to know the data shows you’re likely only to be breaking even using this pattern before fees.

The good news is that this article will teach you how to roll up your sleeves and capitalize on the upside tasuki gap’s inherent volatility.

What Is an Upside Tasuki Gap Candlestick Pattern?

Upside Tasuki Gap Candlestick Pattern Illustration © Analyzing Alpha
Upside Tasuki Gap Candlestick Pattern Illustration

The upside tasuki gap is a three-bar candle pattern that traditional technical analysts believe suggests a bullish continuation.

Tasuki (襷/たすき) is a Japanese word that refers to a fashion accessory that holds up the long sleeves of a kimono, which refers to how the candle is positioned in the tasuki gap pattern.

Speaking of positioning, let’s learn how to identify this three-bar pattern now.

How to Identify the Upside Tasuki Gap Candlestick Pattern

Upside Tasuki Gap Candlestick Pattern on the ASML Holding (ASML) March 23rd, 2021 daily chart
Upside Tasuki Gap Candlestick Pattern on the ASML Holding (ASML) March 23rd, 2021 daily chart

A valid upside tasuki gap candlestick pattern requires the following:

  • A first candle.
  • The second candle must be bullish and gap up.
  • The third candle must be bearish, open within the previous candle’s real body, and close within the gap.
  • The upside tasuki gap must occur during a downtrend.

The ASML Holding (ASML) daily chart on May 23rd, 2021, presents traders with an upside tasuki gap. 

The final candle of the upside tasuki gap pattern closes above the fifty-day moving average, giving us a bullish trend. There’s a bullish candle, a bullish candle that gaps up significantly, and a bearish candle that open’s within the second candle’s real body and closes within the gap, fulfilling the upside tasuki gap pattern requirements. 

Now that we can identify this three-bar pattern, let’s lift the kimono to see what the data tells us about the best upside tasuki gap trading patterns.

How to Trade the Upside Tasuki Gap Pattern

The data shows that the best upside tasuki gap trading strategy is a bullish mean reversion strategy expecting a sizeable risk-reward trade.

Before we cover the best trading strategy, let’s learn how other traders are losing money.

Upside Tasuki Gap Bullish Continuation Trade Setup

Upside Tasuki Gap Bullish Continuation Trade Setup on the Brookfield Asset Management (BAM) April 6th, 2021 daily chart
Upside Tasuki Gap Bullish Continuation Trade Setup on the Brookfield Asset Management (BAM) April 6th, 2021 daily chart

Let’s practice identifying the bullish tasuki gap. 

The price is pushed north of the fifty-day simple moving average, giving us a short-term bull market. There’s a bullish candle, a bullish candle gapping up significantly, and a final bearish candle opening within the second candle’s real body and closing in the gap.

Brookfield Asset Management’s (BAM) daily chart shows the upside tasuki gap in full force.

With the upside tasuki identified, traditional traders enter long at a break of the third candle’s high while setting the stop loss below the first candle’s low.

Traders practicing traditional technical analysis barely break even before fees if history is a guide. Stock traders who prefer the winds of history at their backs capture the likely bullish volatility.

Tasuki Gap Bullish Mean Reversion Trade Setup

Upside Tasuki Gap Bullish Mean Reversion Trade Setup on the Natera (NTRA) November 9th, 2020 daily chart
Upside Tasuki Gap Bullish Mean Reversion Trade Setup on the Natera (NTRA) November 9th, 2020 daily chart

There’s an uptrend; the second candle gaps up, and the third candle opens within the previous real body and closes in the gap. Mean reversion traders enter long when the price moves below the pattern’s low and enter long when the price moves back above that low and set a stop loss of one ATR.

The upside tasuki gap occurred on the Natera (NTRA) daily chart on September 9th, 2020. The pattern low is on the first candle at $74.58. The price moves below and above this low on the 10th, triggering an entry. The price moves up and to the right after entry producing pretty profits.

Think about profits; what does history tell us about the best upside tasuki gap trading strategies?

Does the Upside Tasuki Gap Candlestick Pattern Work? (Backtest Results)

I backtested the upside tasuki gap pattern on the daily timeframe in the crypto, forex, and stock markets using the following rules:

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Multiple candlestick patterns are often confused with the upside tasuki gap.

Downside Tasuki Gap vs. Upside Tasuki Gap

Downside Tasuki Gap Candlestick Pattern Illustration © Analyzing Alpha
Downside Tasuki Gap Candlestick Pattern Illustration

The downside tasuki gap is the bearish version of its bullish brethren. The downside tasuki requires an uptrend, and the candle colors are reversed. The second candle gaps down and is black, and the third candle opens within the second candle’s real body and closes within the gap window.

Up Gap Side-by-Side White Lines vs. Upside Tasuki Gap

Up Gap Side-by-Side White Lines Candlestick Pattern Illustration © Analyzing Alpha
Up Gap Side-by-Side White Lines Candlestick Pattern Illustration

The bullish side-by-side white lines, also known as up gap side-by-side white lines, are three-bar bearish continuation patterns. The differences between the up gap side-by-side and the upside tasuki gap are 1) the second candle is white, and 2) the third candle opens and closes roughly the same as the previous. 

Upside Gap Three Method vs. Upside Tasuki Gap

Upside Gap Three Methods Candlestick Pattern Illustration © Analyzing Alpha
Upside Gap Three Methods Candlestick Pattern Illustration

The upside gap three methods is a three-candle bullish continuation similar to the upside gap, which often confuses traders. The first candle is bullish, with a second bullish candle that gaps up and a third bearish candle that closes within the first candle’s real body.

The critical understanding is that the upside gap requires a first bullish candle, while the upside gap’s first candle can be any color. Additionally, the last candle in the upside gap closes the gap, whereas the tasuki closes within the gap.

The Bottom Line

The upside tasuki gap is a three-candle bearish continuation pattern that’s best traded using a mean reversion strategy in the stock market, according to a 21-year backtest. Traditional technical analysts think this pattern continues the bearish trend, but data-driven candlestick chartists know the pattern likely represents future volatility and if they want to go bear, they only trade the best bear market candlestick patterns.

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