Tasuki Gap

The Tasuki Gap is a rare and powerful candlestick pattern that signals potential trend continuation or reversal in financial markets. This article explores every facet of the Tasuki Gap, from its historical roots to advanced trading strategies, providing traders with the knowledge to identify, interpret, and trade this pattern with confidence.

Introduction

The Tasuki Gap is a multi-candle formation that stands out for its ability to indicate the strength or exhaustion of a prevailing trend. Originating from Japanese candlestick charting—a method developed by rice traders in the 18th century—this pattern has become a staple in the toolkit of modern technical analysts. Understanding the Tasuki Gap is crucial for traders seeking early signals of market momentum or reversal, especially given its rarity and reliability when confirmed by volume and trend context.

What is the Tasuki Gap?

The Tasuki Gap is a three-candle pattern that appears during strong trends. It consists of two candles moving in the direction of the trend, separated by a gap, followed by a third candle that moves against the trend but fails to fill the gap. This inability to fill the gap is a key confirmation of the pattern's validity. The Tasuki Gap can be bullish or bearish, depending on the direction of the prevailing trend.

Historical Background and Origin

Candlestick charting was pioneered by Japanese rice traders, with Munehisa Homma often credited as its founder. Over centuries, these techniques evolved and spread globally, becoming integral to technical analysis in stocks, forex, crypto, and commodities. The Tasuki Gap, like many candlestick patterns, reflects the psychology of market participants and the ongoing battle between buyers and sellers.

Structure and Formation of the Tasuki Gap

The Tasuki Gap consists of three candles:

• First Candle: A strong trend candle (bullish or bearish).
• Second Candle: Continues the trend, with a gap in the same direction.
• Third Candle: Moves against the trend but does not fill the gap.

The color and size of the candles, as well as the size of the gap, are critical in confirming the pattern. A large gap and a small third candle indicate a strong signal, while a small gap or a third candle that nearly fills the gap may signal weakness or a false positive.

Bullish vs. Bearish Tasuki Gap

The inability of the third candle to fill the gap is a crucial confirmation. If the gap is filled, the pattern is invalidated.

Psychology Behind the Tasuki Gap

The Tasuki Gap reflects a psychological tug-of-war between trend followers and contrarians. The initial gap signals strong momentum, often driven by institutional activity or news. The third candle represents an attempt by the opposing side to reclaim lost ground, but their failure to fill the gap confirms the strength of the prevailing trend. This dynamic creates a high-probability setup for trend continuation.

Types and Variations

While the classic Tasuki Gap is a three-candle pattern, variations exist based on gap size, candle size, and volume. Strong signals occur with large gaps and small third candles on high volume. Weak signals or false positives arise when the third candle nearly fills the gap or when volume is low. The Tasuki Gap is related to other gap patterns, such as the Breakaway Gap and Measuring Gap, but is distinguished by its unique structure and confirmation criteria.

Real-World Chart Examples

In an uptrend, a bullish Tasuki Gap may appear after a series of rising candles, with the gap signaling strong buying interest. In a downtrend, a bearish Tasuki Gap marks aggressive selling. On smaller timeframes (1m, 15m), the pattern can be fleeting, while on daily or weekly charts, it carries more weight. For example, a bullish Tasuki Gap on the EUR/USD daily chart may precede a multi-day rally, while a bearish Tasuki Gap on Bitcoin’s 4-hour chart could signal a sharp drop.

How to Trade the Tasuki Gap

• Entry: Enter in the direction of the gap after the third candle closes and confirms the gap is not filled.
• Stop Loss: Place a stop loss just beyond the gap (below for bullish, above for bearish).
• Take Profit: Set targets based on risk/reward ratio or the next resistance/support level.

Combining the Tasuki Gap with indicators like RSI, MACD, or moving averages can improve reliability. Risk management is essential—never risk more than a small percentage of your capital on a single trade.

Backtesting and Reliability

Backtesting shows that the Tasuki Gap has higher reliability in trending markets. In stocks, it often precedes strong moves, especially on high volume. In forex, its success rate is moderate, as gaps are less common. In crypto, where volatility is high, the pattern can be powerful but also prone to false signals. Institutions may use the Tasuki Gap as part of larger algorithms, filtering for volume and trend strength. Common pitfalls include overfitting backtests and ignoring market context.

Advanced Insights and Algorithmic Trading

Algorithmic traders can program the Tasuki Gap into their systems, using strict criteria for gap size and candle structure. Machine learning models can be trained to recognize the pattern and predict outcomes based on historical data. In the context of Wyckoff or Smart Money Concepts, the Tasuki Gap may signal absorption or distribution phases, providing clues about institutional activity.

Case Studies

One famous example is the bullish Tasuki Gap on Apple’s stock in 2019, which preceded a major rally. In forex, a bearish Tasuki Gap on the GBP/USD weekly chart in 2016 signaled the start of a prolonged downtrend. In crypto, Ethereum’s daily chart showed a bullish Tasuki Gap before a breakout in 2021. Each case demonstrates the pattern’s power when confirmed by volume and trend.

Comparison Table: Tasuki Gap vs. Other Gap Patterns

Practical Guide for Traders

• Identify the prevailing trend.
• Look for a strong move followed by a gap.
• Confirm the third candle does not fill the gap.
• Check volume for confirmation.
• Set stop loss and take profit levels.
• Backtest the pattern on your chosen market.
• Avoid trading in choppy or sideways conditions.

For example, if you spot a bullish Tasuki Gap on a daily stock chart, wait for the third candle to close, enter long, set a stop loss below the gap, and target the next resistance. Common mistakes include entering before confirmation, ignoring volume, or trading in low-liquidity markets.

Code Examples: Detecting the Tasuki Gap

Below are code snippets in multiple languages to help you detect the Tasuki Gap pattern in your trading systems. Use the tabs to switch between implementations.

// C++ Example: Detecting Bullish Tasuki Gap
#include <iostream>
bool isBullishTasukiGap(double open1, double close1, double open2, double close2, double high2, double low2, double open3, double close3, double high3, double low3) {
    bool bullish1 = close1 > open1;
    bool bullish2 = close2 > open2;
    bool gapUp = low2 > high1;
    bool bearish3 = close3 < open3;
    bool notFilled = low3 > high2;
    return bullish1 && bullish2 && gapUp && bearish3 && notFilled;
}

# Python Example: Detecting Bullish Tasuki Gap
def is_bullish_tasuki_gap(candles):
    c1, c2, c3 = candles[-3], candles[-2], candles[-1]
    bullish1 = c1['close'] > c1['open']
    bullish2 = c2['close'] > c2['open']
    gap_up = c2['low'] > c1['high']
    bearish3 = c3['close'] < c3['open']
    not_filled = c3['low'] > c2['high']
    return bullish1 and bullish2 and gap_up and bearish3 and not_filled

// Node.js Example: Detecting Bullish Tasuki Gap
function isBullishTasukiGap(candles) {
  const [c1, c2, c3] = candles.slice(-3);
  const bullish1 = c1.close > c1.open;
  const bullish2 = c2.close > c2.open;
  const gapUp = c2.low > c1.high;
  const bearish3 = c3.close < c3.open;
  const notFilled = c3.low > c2.high;
  return bullish1 && bullish2 && gapUp && bearish3 && notFilled;
}

//@version=6
indicator("Tasuki Gap Detector", overlay=true)
// Identify bullish Tasuki Gap
bullish1 = close[2] > open[2]
bullish2 = close[1] > open[1]
gapUp = low[1] > high[2]
bearish3 = close < open
notFilled = low > high[1]
bullTasuki = bullish1 and bullish2 and gapUp and bearish3 and notFilled
// Identify bearish Tasuki Gap
bearish1 = close[2] < open[2]
bearish2 = close[1] < open[1]
gapDown = high[1] < low[2]
bullish3 = close > open
notFilledDown = high < low[1]
bearTasuki = bearish1 and bearish2 and gapDown and bullish3 and notFilledDown
// Plot signals
plotshape(bullTasuki, style=shape.triangleup, location=location.belowbar, color=color.green, size=size.small, title="Bullish Tasuki Gap")
plotshape(bearTasuki, style=shape.triangledown, location=location.abovebar, color=color.red, size=size.small, title="Bearish Tasuki Gap")

// MetaTrader 5 Example: Detecting Bullish Tasuki Gap
bool isBullishTasukiGap(double open1, double close1, double high1, double low1,
                       double open2, double close2, double high2, double low2,
                       double open3, double close3, double high3, double low3) {
   bool bullish1 = close1 > open1;
   bool bullish2 = close2 > open2;
   bool gapUp = low2 > high1;
   bool bearish3 = close3 < open3;
   bool notFilled = low3 > high2;
   return bullish1 && bullish2 && gapUp && bearish3 && notFilled;
}

Conclusion

The Tasuki Gap is a powerful but rare candlestick pattern that can offer significant trading opportunities when used correctly. Trust the pattern in trending markets with strong volume, but be cautious in sideways or illiquid conditions. Always combine it with sound risk management and other technical tools for best results. By understanding the structure, psychology, and practical application of the Tasuki Gap, traders can enhance their edge in the markets and make more informed decisions.