Downside Tasuki Gap Candlestick Pattern: Candlestick patterns are integral to technical analysis, offering traders insights into market psychology and potential price movements. The Downside Tasuki Gap is one such pattern, known for signalling bearish continuation during a downtrend.
In this article, we shall explore the meaning, psychology, formation, and trading strategy of the Downside Tasuki Gap candlestick pattern with an example.
Downside Tasuki Gap Candlestick Pattern – Definition
The Downside Tasuki Gap is a three-candle bearish continuation pattern that appears during a downtrend. It suggests that the downward momentum is likely to persist, providing traders with a signal that the current bearish trend will continue
The pattern comprises three specific candlesticks that indicate a temporary pause in the trend, followed by a resumption of the downtrend
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Downside Tasuki Gap Candlestick Pattern – Formation
Understanding the formation of pattern helps to identify and spot better trading opportunities. The pattern formation comprises the following three candles:
- First candle: A large red candle that is a part of the existing downtrend.
- Second candle: Another red candle opens at a gap down below the first candle.
- Third Candle: A small green candle that opens within the second candle’s body and closes within the gap between the first two candles
Downside Tasuki Gap Candlestick Pattern – Psychology
When the Downside Tasuki Gap Candlestick Pattern forms in a downtrend, the formation of the first candle suggests that the sellers are in control and are pushing the price lower. The second candle opening with a gap down indicates that there has been even higher selling pressure which has resulted in a gap down.
The third bullish candle which closes between the gap indicates that buying pressure couldn’t push the price further up and the gap acted as a resistance zone. Hence, this pattern generally indicates that the selling pressure is still intact. The formation of this pattern in a downtrend indicates the continuation of the market sentiment after a small pause in the downward movement.
This shows that the selling intent in the market remains unchanged and hence the negative sentiment might continue and push the price lower. Therefore the pattern formation creates an opportunity to enter new short positions.
Downside Tasuki Gap Candlestick Pattern – Trading Ideas
In a strong prevailing downtrend, the formation of the Downside Tasuki Gap pattern indicates that the bearish trend is likely to continue. Hence, one can enter a short position in the security.
Entry:- Enter a short position in the security below the third green candle of the pattern formed.
Stoploss:- The stoploss for the pattern should be placed near the close price of the first red candle of the Downside Tasuki pattern.
Profit Target:- As a good risk management the profit target can be on one’s risk-reward ratio or can be set to the next level of support from the entry position.
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Downside Tasuki Gap Candlestick Pattern – Example
The above chart of Reliance Industries shows the formation of a Downside Tasuki Gap candlestick pattern. At the time of the formation of this pattern, a trader could have taken a short position when the price of the stock started trading below Rs. 2357.15 and the stop loss at Rs. 2358.55.
Downside Tasuki Gap Candlestick Pattern – Limitations
The formation of Downside Tasuki Gap helps in identifying trading opportunities, but it’s also important to understand its limitations for better risk management.
- The pattern is most reliable in a clearly defined downtrend. In choppy or sideways markets, its reliability decreases.
- Relying solely on the Downside Tasuki Gap for trading decisions can be risky. It is advisable to use additional technical indicators, such as volume analysis or moving averages, to confirm the pattern.
Conclusion
The Downside Tasuki Gap candlestick pattern is a valuable tool for traders looking to identify bearish continuation during a downtrend. By understanding its formation and the psychology behind it, traders can better interpret market signals and make more informed trading decisions.
However, it’s essential to acknowledge the pattern’s limitations and use it in conjunction with other technical analysis tools to enhance accuracy and manage risk effectively.
Written by Deepak
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