A Downside Tasuki Gap is a candlestick formation that is commonly used to signal the continuation of the current downtrend. The pattern is formed when a series of candlesticks have demonstrated the following characteristics:
1. The first bar is a red candlestick within a defined downtrend.
2. The second bar is another red candlestick that has gapped below the close of the previous bar.
3. The last bar is a white candlestick that closes within the gap of the first two bars. It is important to note that the white candle does not need to fully close the gap.
The white candlestick that forms the Downside Tasuki Gap is as a period of slight consolidation before the bears continue to send the price lower. In technical analysis, it is not uncommon to see the price of the asset close the gap created in the price. Sometimes traders get ahead of themselves and send the price lower too quickly, which can result in a slight retracement.
The Downside Tasuki Gap (also known as the Bearish Tasuki Gap) is a three-candle continuation pattern. In order to spot this pattern, keep the following criteria in mind...
First, a clear downtrend must be present, and it must end with a red (or black) candle. Second, that downtrend must gap down to a large red/black candle. Third, a green (or white) candle must follow the red/black candle. Fourth and finally, the green/white candle must open inside the red candle’s real body and close above it. This candle should not close the gap between the first two candles.
Of the three candles involved, the first two must be red/black and the third will be green/white. In order to qualify, the second and third candles must be opposing colors. The second two candles should also be about the same size.
The Downside Tasuki Gap pattern’s gap down shows the power of the downtrend; the bears are in control and exhibiting their strength. This downward strength is then amplified, shown by the price being driven lower and a new red candle forming. However, a pause follows this movement as the bulls attempt to force the price up. They take a chance and try their best, but they are unable to close the gap. Because of this failed attempt, we can predict that the bears will regain control and the downtrend will continue.
The Downside Tasuki Gap has a counterpart: the Upside Gap Tasuki. It can be spotted by displaying the same criteria above, but in the opposite formation (an uptrend followed by a gap up, a green/white candle, and then a red/black candle that opens within the previous candle and closes below it).