Upside Tasuki Gap

 


Shape:
The upside tasuki gap is a bullish continuation candlestick pattern that typically forms during an uptrend.

It consists of three candles: the first is a long bullish candle, the second is another bullish candle that gaps above the first one, and the third is a bearish candle that opens within the body of the second bullish candle but fails to close the gap completely.
This pattern indicates that the uptrend is likely to continue, as buyers remain in control despite the brief selling pressure shown by the third candle.

Success Rate:
Historically, the upside tasuki gap has a moderate-to-high success rate, especially when it appears in a strong uptrend.
Success rates can vary, but many studies suggest that this pattern has a success rate of around 60-70% in achieving its expected bullish continuation.

Buy:
Enter a buy position when the third candle closes above the midpoint of the second bullish candle or shows a rejection of the gap closure.
The confirmation candle should ideally be accompanied by increased volume.

Take Profit (TP):
Measure the height of the gap or the second bullish candle and project this distance upwards from the closing price of the third candle to set the initial take profit target.
Example: If the height of the gap is Tk.5 and the third candle closes at Tk.50, the target would be Tk.55.

Stop Loss (SL):
Place the stop loss slightly below the low of the second bullish candle.
This helps limit potential losses if the pattern fails and the price reverses.

Sell:
Consider selling if the price fails to continue upwards and instead falls below the low of the second bullish candle.
Also, consider selling if the price reaches the take profit target or shows signs of reversal.

Profit Trailing:
Use a trailing stop to lock in profits as the price continues to move in your favor.
Adjust the stop loss level upwards as the price rises, keeping it a set distance (e.g., a percentage or taka amount) below the current price.

Lot Size:
Determine the lot size based on your risk tolerance and account size.
Ensure that the potential loss (difference between entry price and stop loss) does not exceed a predetermined percentage of your account balance (e.g., 1-2%).

Risk-to-Reward Ratio:
Aim for a favorable risk-to-reward ratio (e.g., 1:2 or higher), where the potential reward is at least twice the potential risk.

Leverage:
Use leverage cautiously. While leverage can amplify gains, it also increases potential losses. Ensure you have a clear understanding of how leverage works and its impact on your trades.

Other Conditions:
Confirm the pattern with increased volume, indicating strong buying interest.
Monitor overall market conditions and sentiment to ensure alignment with the bullish outlook.

Caution:
False patterns can occur, leading to potential losses. Always wait for confirmation before entering a trade.
Market volatility and external factors can influence the pattern’s reliability.
Avoid trading the upside tasuki gap in a weak or bearish market, as the success rate may decrease.

Pros and Cons of the Upside Tasuki Gap Pattern

Pros:

  1. Bullish Continuation Signal:
    The upside tasuki gap typically forms in uptrends and signals a continuation of the bullish move, aligning with the broader market trend.

  2. Clear Structure:
    The pattern’s structure is well-defined, making it relatively easy to identify and trade.

  3. Higher Success Rate:
    The pattern has a relatively high success rate, especially when it appears in a strong uptrend and is confirmed by volume.

  4. Clear Entry and Exit Points:
    The pattern provides clear levels for entry (after confirmation of the gap) and exit (stop loss below the second candle), facilitating trade planning.

Cons:

  1. False Patterns:
    Like any pattern, the upside tasuki gap can sometimes fail, leading to potential losses if not managed properly.

  2. Volume Requirement:
    Successful patterns often require a significant increase in volume. If the breakout occurs on low volume, it might be less reliable.

  3. Market Conditions Dependency:
    The pattern’s effectiveness diminishes in volatile or bearish market conditions. It is most reliable in a stable or bullish market environment.

  4. Short-Term Nature:
    The upside tasuki gap is relatively short-term, requiring traders to act quickly to capitalize on the continuation move.

Trading Psychology of Upside Tasuki Gap

Formation:

  • Initial Uptrend: The pattern forms during an existing uptrend. Buyers are optimistic, and buying pressure is strong.

  • Gap Formation: The second bullish candle gaps up, indicating strong buying interest and momentum.

  • Temporary Pullback: The third bearish candle shows a minor pullback but fails to close the gap completely, suggesting that sellers are weak and buyers remain in control.

Market Sentiment:

  • Buyers’ Confidence: The failure of the third candle to close the gap reinforces buyers’ confidence that the uptrend will continue.

  • Sellers’ Weakness: Sellers attempt to push the price down during the third candle but are unable to challenge the upward momentum.

Breakout Psychology:

  • Anticipation: Traders recognize the pattern and anticipate a continuation of the uptrend, preparing to enter buy positions upon confirmation.

  • Volume Increase: A significant increase in trading volume during the confirmation reassures traders that the bullish sentiment is strong.

  • FOMO (Fear of Missing Out): As the breakout continues, more traders rush to buy, fearing they might miss out on further price gains.

Post-Breakout:

  • Validation: A successful continuation after the gap reassures traders that the uptrend is intact, leading to sustained buying interest.

  • Profit-Taking: Some traders take profits near the target derived from the pattern, but the overall bullish sentiment remains unless significant resistance is encountered.

  • Trailing Stops: Experienced traders use trailing stops to lock in profits while allowing for further upside potential.

Failure and Risk Management:

  • False Patterns: Not all upside tasuki gaps succeed. False patterns can occur, leading to losses if risk management is not applied.

  • Reevaluation: If the pattern fails, traders reassess their strategy and look for other setups or signals to guide their trades.

General Tips for Managing Trading Psychology:

  1. Patience: Wait for confirmation of the pattern before entering a trade to avoid false signals.

  2. Discipline: Stick to your trading plan, including predefined entry, exit, and stop-loss levels.

  3. Emotional Control: Manage emotions like FOMO and fear by focusing on strategy and risk management principles.

  4. Continuous Learning: Stay aware of market conditions and refine your technical analysis skills over time.

Understanding the psychology behind the upside tasuki gap can help traders make more informed decisions and anticipate the continuation of bullish trends.