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Candlesticks – The Downside Tasuki Gap

The Japanese word tasuki is a garter or sash used to hold up a shirt sleeve. The name is aptly assigned to a continuation pattern called the tasuki gap. The trend's direction is maintained or held up by the development of this gapping indicator.

The downside tasuki gap is a bearish continuation signal of moderate reliability. So as with all candlestick indicators, you need independent confirmation before acting on what the tasuki gap foreshadows.

It consists of three consecutive sessions. First is a downward-moving (black) day. Next is a downside gap and then a second black session. Finally, a white session appears but does not fill the gap. Because the downside gap holds up, this third white candlestick session is a signal that buyers lacked the momentum to turn the trend around. It is most likely to continue moving downward. The third day could represent traders buying positions because of the attractive price reduction; but in fact, if this continuation indicator holds, those buyers will lose money as the downtrend continues to develop.

The most interesting part of the tasuki gap is the gap itself. The fact that the gap held tells you that the established trend is strong and cannot be reversed. In comparison, a set of indicators called "gapped filled" gives quite a different signal. When a gap occurs and is then filled, it sends out a different method. A gapped filled may still work as continuation, especially when the third session fails to rise above the resistance level established by the opening price of the first session. This is a subtle distinction, but chartists look for specific signals, confirmation, and relationship to trading ranges.

All candlestick indicators are especially strong when they occur at or near resistance or support. As reversal signals, you will find the greatest likelihood of bearish reversal right at resistance or close to it; and of course, bullish reversals are most likely to succeed when they occur at or near support. These are especially strong when an attempted breakout occurs and then fails as part of the reversal formation.

Continuation is more likely to occur mid-range. When a continuation indicator occurs at or near resistance (bullish continuation) or support (bearish) it is less reliable. The possibility of failure of trends at or near these borders is quite high, so continuation indicators are not as reliable as they are elsewhere.

This fact points out an interesting aspect of charting, especially using candlesticks. It is not always accurate to use averages to decide how reliable a continuation or reversal indicator is going to be. It makes more sense to judge the reliability of candlestick formations based on where they occur. Remember, price action at or near resistance or support is going to be much different than at mid-range.

All of the signals you will use demand confirmation in the form of other candlestick signals or traditional Western indicators. These include continuation gaps, trading range tests (head and shoulders, double tops, or double bottoms, for example), wedges, triangles, and channels. You can also get very strong confirmation from momentum oscillations (MACD or RSI, for example).

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