Upward Gapping and Downward Gapping Tasuki Candlestick Pattern

TASUKI

As shown in Exhibits 5.10 and 5.11 the tasuki are a specific combination of two candle lines that gap higher or lower.

Upward Gapping Tasuki

The upward gapping tasuki in Exhibit 5.10 is made of a rising window formed by a white candle and then a black candle.

Exhibit 5.10. Upward Gapping Tasuki

The black candle opens within the white real body and closes under the white candle's real body. The close on the black candle day is the fight point. If the market closes under the bottom of the window, the bullish outlook of the upward gap tasuki is void­ed.

Downward Gapping Tasuki

The same concept is true in reverse for a downward gapping tasuki (see Exhibit 5.11). The market opens a falling window with a black candle followed by a white candle. The two can­dles of the tasuki should be about the same size. Both types of tasuki are rare.

Exhibit 5.11. Downward Gapping Tasuki

Based on my extra twelve years of experience since the first edition of this book, I have recommended at my seminars that there is little reason to waste brain cells on remembering the tasuki. The window is so overwhelmingly important that, in my opinion, it really doesn't matter the color or combination of candle lines after the rising window. It is the window itself that is critical. All one needs to remember is that if there is a rising window (such as the upward tasuki), it is a bullish signal and the window should be support. A close under this support would turn the trend down. The same is true in reverse for the downward tasuki. That is, since the downward gapping tasuki

Exhibit 5.12. Platinum-Weekly (Upward Gapping Tasuki)

has a falling window, the window should be resistance. A close over the top of the falling window would void the bearish implications of the downward gapping tasuki.

In Exhibit 5.12 a diminutive rising window opened late September. The two candles after this rising window formed the upward gapping tasuki. It's a tasuki because of the white candle followed by the black after the rising window. However, as mentioned above, in my opinion it doesn't matter what the candle lines look like after the rising window. My main concern is looking at that rising window as support based on the close. As shown with the dashed line, that support managed to hold based on the close. Then, significantly in late October, a bullish belt-hold line that wrapped around three black real bodies gave final confirmation of that window's support.

High-Price and Low-Price Gapping Plays

It is normal after a sharp advance for the market to consolidate the gains. Sometimes this consolidation is by a series of small real bodies. A group of small real bodies after a strong white session tells us that the market is undecided. These small real bodies, while changing the trend from up to neutral, are in a sense healthy since, by treading water, the market is then relieving its overbought condition. If there is a rising window from these small real bodies, it is a bullish signal. This is the high-price gapping play pattern (see Exhibit 5.13). It is called this because prices hover near their recent highs and then gap to the upside.

Exhibit 5.13. High-Price Gapping Play

A low-price gapping play is, not surprisingly, the bearish counterpart of the high-price gapping play. The low-price gapping play (see Exhibit 5.14) is a downside window from a low-price congestion band. This congestion band (a series of small real bodies) initially stabilized a steep decline. At first, this group of small candles gives the appearance that a base is forming. The break to the downside via a window dashes these bullish hopes.

Exhibit 5.14. Low-Price Gapping Play

In Exhibit 5.15 a hammer on July 31 proved to be the low of the move as the market ascended into the early part of August with a rising window. A long black real body during the week of August 7 made a dark-cloud cover, putting a temporary damper on the rally.

Exhibit 5.15. Corning-Daily (High-Price Gapping Play)

During the week of August 21, a series of small real bodies following a tall white candle showed us that the stock had reached a lull. The small rising window on August 28 proved that the bulls had taken full control as the market completed a high-price gapping play.

The bullish implications of this gapping play, or any high- price gapping play, would be voided if the market closed under the rising window that completes the gapping play. The reverse would be true for a low-price gapping play.

In Exhibit 5.16 we see a tall white candle on June 29. The doji on June 30 following the tall white candle showed that the stock had gone from up to more neutral since these two candle lines made a harami cross. The small real bodies following this doji just echoed this outlook. Note how at the bottom of the chart, the tight trading range echoed by the four small real bodies resulted in the oscillator going from an overbought condition at 1 to a neutral reading at 2. This is an aspect discussed in the introduction to this section on gapping plays, namely the small real bodies of the gapping play helped relieve an overbought 

Exhibit 5.16. 99cents Only Stores-Daily (High-Price Gapping Play)

Exhibit 5.17. Sugar-Daily (Low-Price Gapping Play)

reading. With the stock not overbought at 2, it made it easier for the market to rally. Once the stock opened a small window on July 7, it formed a high-price gapping play. A dumpling top unfolded in mid July.

A harami pattern in early April in Exhibit 5.17 helped short- circuit a rally. The descent from this pattern picked up steam, especially with the extended black real body of April 15. The next two sessions' spinning tops gave a clue that the stock was trying to stabilize. However, the new low close on April 17, and then the low-price gapping play completing the next session, showed the bears had regained complete control.

Observe how a small falling window in early May became resistance. This resistance area was important to keep in mind because there were bottoming signals with a hammer at 1 and the bullish engulfing pattern at 2. A trader should be cautious about buying on either these bullish signals because of the limited profit potential based on the window's resistance.

Gapping Side-by-Side White Lines

In a rally, an upward-gapping white candle followed the next session by another similar-sized white candle with about the same opening is a bullish continuation pattern. This two-candle pattern is referred to as upgap side-by-side white lines (see Exhibit 5.18).

Exhibit 5.18. Upgap Side-by-Side White Lines in a Uptrend

There are rarer side-by-side white lines that gap lower. These are called downgap side-by-side white lines (see Exhibit 5.19). In spite of the dual white candles, it is still considered a bearish signal because of the falling window. These white lines are viewed as short covering. Once this short covering evaporates, prices should move lower. The reason the downgap side-by- side white line pattern is especially rare is because black candles, not white candles, are more natural in a declining price environment.

Exhibit 5.19. Downgap Side-by-Side White Lines in a Downtrend

Although I have examples of these patterns in the following exhibits, the candle lines that make the gapping side-by-side white candles are not critical to remember. What is important is the rising and falling windows that are part of these patterns. As discussed in the tasuki pattern earlier in this chapter, I view it as of minor consequence if there are two white candles (as with the side-by-side patterns) or a black and white candle (as with the tasuki) after the window. It is the window itself that gives us the trend and the support or resistance area.

For example, in the downgap side-by-side white candles, it is not surprising that this is a bearish signal in spite of the two white candles. This is because it is the falling window of that pattern that defines the trend (in this case, down). It would take a close over the top of the falling window to negate the bearish outlook of the downgap side-by-side white lines.

The moral of this story: It is not necessary to worry about remembering the esoteric tasuki and gapping side-by-side white lines. It is the window that is critical. The combination and colors of the candle lines after a rising or falling window patterns aren't important. A falling window puts the trend down and a rising window puts the trend up with the window as support or resistance.

Exhibit 5.20 shows an upgap side-by-side white lines the first two days in May. As discussed earlier, it's not so much the color of these white lines in the upgap side-by-side lines that make this positive as much as the rising window that opened on May 1.

Exhibit 5.20. Platinum-Daily (Upgap Side-by-Side White Lines)

Because this chart has many examples of windows, I will discuss them individually.

·       A falling window at 1 keeps the trend down. This is in spite of the fact that it was a hammer on March 26. Usually, between the window and another pattern, I go with the window. In this case, it was between a bullish hammer and a bearish falling window. The bearish outlook engendered by the falling window takes precedence over the hammer. It would take a close above the window to have the bullish outlook hinted at by the hammer to be validated.

·       The small rising window at 2 became support on the minor retracement from the dark-cloud cover of April 4 and 5. The doji on April 10 (at the window's support) showed two things. The first was that the window at 2 held as support. The second was that the stock was separating from its prior downtrend that was evidenced by the three consecutive black real bodies before the doji.

·       The rally that started with the successful defense of window 2 on April 10 stalled on April 23 as Platinum got to the resis¬tance area at $495 defined by the top of falling window 1. The decline from this resistance opened a falling window at The long black real body on April 25 followed by a small real body inside that black real body formed a harami pattern. This showed that the bears were losing their momentum.

·       The rising window on May 1 followed by the two small white real bodies. (This formed the aforementioned upward gapping side-by-side white candle line pattern.)

After the upgap side-by-side white lines, it became a battle of windows with the falling window at 3 as resistance (near $488) and rising window at 4 near $475 as support. We can see that for over a week the aforementioned support and resistance areas held intact until April 17 when the demand was strong enough to push the market over the falling window 3's resistance on a close. (On April 14 the market pushed over the window intraday but did not close above it—thus keeping the window's resistance intact.) From the break of that resistance, the market ascended briskly until a harami pattern on May 18 and 21 called an end to that rally.