Ever stared at your trading screen wondering if that weird gap pattern means the price is about to crash?
I get it.
The downside tasuki gap pattern looks confusing at first.
But here’s the thing – once you understand this candlestick pattern, you’ll spot trend continuation signals like a pro.
Let me break down everything you need to know about trading this pattern.
No fancy jargon.
Just real talk from someone who’s been in the trenches.
What is a Downside Tasuki Gap Pattern?
Picture this scenario.
You’re watching a stock that’s been falling for days.
Suddenly, you see three candles that form a specific pattern.
The downside tasuki gap candlestick pattern is a three-candle formation that signals the downtrend will likely continue.
Here’s what it looks like:
- First candle: Long red (bearish) candle
- Second candle: Another red candle that gaps down from the first
- Third candle: White (bullish) candle that partially fills the gap
Think of it as the market taking a breath before continuing its fall.
The gap down shows sellers are in control.
The small bounce up? That’s just weak buying that can’t sustain itself.
How to Identify the Downside Tasuki Gap
Spotting this pattern isn’t rocket science.
But you need to know the exact rules.
The Three Essential Components
Component 1: The Setup Candle
- Must be a long red bearish candle
- Should show strong selling pressure
- Volume should be above average
Component 2: The Gap Down
- Second red candle opens below the previous close
- Creates a visible gap on the chart
- Shows continued selling momentum
Component 3: The False Hope Candle
- Third candle is white/green (bullish)
- Opens within the gap area
- Closes within the gap but doesn’t fill it completely
What Makes It Valid
Not every three-candle formation counts.
Here’s what separates real patterns from noise:
- Clear downtrend must exist before the pattern
- Genuine gap between first and second candle
- Partial fill only – third candle doesn’t close above first candle’s close
- Volume confirmation – selling volume should exceed buying volume
I’ve seen too many traders force patterns that aren’t really there.
Don’t be that person.
Psychology Behind the Downside Tasuki Gap
Understanding why this pattern works is crucial.
Let’s dive into the market psychology.
Day 1: The Breakdown
Sellers dominate completely.
Fear spreads through the market.
Everyone wants out.
Day 2: The Panic
Gap down at open shows overnight selling pressure.
International markets, news, or simply fear creates the gap.
Sellers continue pushing price lower.
Day 3: The False Rally
Some buyers think they’re getting a bargain.
Maybe it’s bottom fishers or short covering.
But the buying is weak.
Price can’t even fill the gap completely.
This tells you sellers are still in control.
How to Trade the Downside Tasuki Gap Pattern
Now for the money-making part.
Here’s my exact trading strategy.
Entry Strategy
Option 1: Aggressive Entry
- Enter short at the close of the third candle
- Place stop loss above the high of the third candle
- Target the next support level
Option 2: Conservative Entry
- Wait for price to break below the third candle’s low
- Enter short on the break
- Stop loss above the pattern’s highest point
I prefer the conservative approach.
Better safe than sorry.
Stop Loss Placement
Your stop loss should go above the highest point of the three-candle pattern.
Usually, that’s the high of the third candle.
Give it some breathing room though.
Add 1-2% buffer for market noise.
Profit Targets
Set your targets based on:
- Previous support levels
- Fibonacci retracements
- Round numbers
- Volume profile gaps
I typically aim for a 2:1 risk-reward ratio minimum.
Sometimes I’ll scale out at multiple levels.
Take 50% profits at first target.
Let the rest ride with a trailing stop.
Position Sizing
Never risk more than 1-2% of your account on any single trade.
This pattern has about 65-70% success rate in trending markets.
Size accordingly.
Best Market Conditions for Trading This Pattern
Not all market environments are equal.
The downside tasuki gap works best when:
Trending Markets
- Clear downtrend already established
- Higher volume on red candles
- Lower highs and lower lows visible
High Volatility Periods
- Earnings season
- Economic announcements
- Market stress periods
Avoid These Conditions
- Sideways choppy markets
- Low volume periods
- Around major support levels
I learned this the hard way.
Tried trading this pattern in sideways markets for months.
Lost money consistently.
Stick to trending environments.
Real Trading Examples
Let me share some actual trades I’ve made using this pattern.
Example 1: Tech Stock Breakdown
Last year, I spotted this pattern on a popular tech stock.
Stock was already down 15% from highs.
First candle: -4% red candle on earnings miss.
Second candle: Gapped down another -2% at open.
Third candle: Small +1% green candle that barely filled half the gap.
I entered short at the close.
Set stop at 2% above entry.
Stock fell another 8% over the next two weeks.
Example 2: Index ETF Trade
Market was in correction mode.
SPY showed the perfect downside tasuki gap setup.
Entered with 500 shares.
Risked $250 (0.5% of account).
Made $850 profit when it hit my target.
These patterns work across all timeframes and instruments.
Common Mistakes to Avoid
Here are the traps I see traders fall into.
Mistake 1: Forcing the Pattern
Not every gap down is a tasuki gap.
You need all three components.
Don’t force trades that aren’t there.
Mistake 2: Ignoring the Trend
This is a continuation pattern.
It only works in established downtrends.
Don’t trade it in uptrends or sideways markets.
Mistake 3: Poor Risk Management
Some traders go all-in on these setups.
That’s gambling, not trading.
Stick to your position sizing rules.
Mistake 4: Chasing After the Move
If you missed the initial entry, let it go.
Don’t chase the move after it’s already started.
There will always be another opportunity.
Advanced Tips for Better Results
Want to improve your success rate?
Here are some pro tips.
Combine with Other Indicators
- RSI below 50 confirms bearish momentum
- Moving averages acting as resistance
- Volume analysis for confirmation
Multiple Timeframe Analysis
Check higher timeframes for context.
If daily chart shows downtrend and 4-hour shows the pattern, that’s golden.
Market Context Matters
During bull markets, continuation patterns fail more often.
During bear markets, they work like clockwork.
Adjust your expectations accordingly.
Risk Management for Downside Tasuki Gap Trades
Let’s talk about protecting your capital.
Position Sizing Formula
Here’s how I calculate position size:
Account Risk = Account Size × Risk Percentage Stop Distance = Entry Price – Stop Loss Price Position Size = Account Risk ÷ Stop Distance
Example:
- $10,000 account
- 1% risk = $100
- Entry at $50, stop at $52
- Position size = $100 ÷ $2 = 50 shares
Multiple Exit Strategy
I don’t just set one target and forget.
Here’s my approach:
- 25% profit at first resistance level
- 50% profit at main target
- 25% trailing stop for extended moves
This way I lock in gains while still catching big moves.
Timeframes That Work Best
The downside tasuki gap pattern works across multiple timeframes.
But some are better than others.
Daily Charts
- Most reliable signals
- Better risk-reward ratios
- Less noise and false signals
4-Hour Charts
- Good for swing trading
- Faster signals
- More opportunities
1-Hour Charts
- Day trading opportunities
- Higher frequency
- More false signals
I stick to daily and 4-hour charts mostly.
The signals are cleaner.
Combining with Support and Resistance
This pattern becomes deadly when combined with key levels.
Resistance Turned Support
When previous support becomes resistance, and you see this pattern form near that level?
That’s a high-probability setup.
Round Number Levels
Psychological levels like $50, $100, or $200 matter.
If the pattern forms near these levels, pay attention.
Market participants remember these numbers.
Volume Analysis with Tasuki Gap
Volume tells the real story.
Here’s what to look for:
Ideal Volume Pattern
- High volume on first red candle
- Moderate volume on gap down candle
- Low volume on the bounce candle
This shows strong selling pressure followed by weak buying.
Perfect setup for continuation.
Volume Red Flags
- High volume on the bounce candle (buyers stepping in)
- Decreasing volume throughout pattern (lack of conviction)
- Volume spikes without price movement (distribution)
Sector-Specific Considerations
Different sectors behave differently.
Tech Stocks
- More volatile
- Bigger gaps
- Faster moves
Utility Stocks
- Smaller gaps
- Slower moves
- More reliable patterns
Financial Stocks
- Influenced by interest rates
- News-driven gaps
- Correlation with market sentiment
Adjust your strategy based on the sector you’re trading.
When the Pattern Fails
Not every downside tasuki gap leads to profits.
Here’s when to cut losses quickly.
Failure Signals
- Price closes above the gap area
- Volume surge on buying
- Bullish divergence on RSI
- Breaking above pattern high
What to Do When Wrong
Take the loss.
Don’t hope and pray.
Don’t average down.
Move on to the next opportunity.
I’ve saved thousands by cutting losses early.
The market doesn’t care about your opinion.
Market Context and Timing
Timing matters more than most people think.
Best Market Conditions
- Bear market phases
- Correction periods
- High volatility environments
- News-driven selloffs
Avoid These Times
- End of year rallies
- Post-Fed meeting bounces
- Oversold bounce periods
- Holiday trading
Context is everything in trading.
Building a Complete Trading System
The downside tasuki gap shouldn’t be your only tool.
Build a complete system.
Pre-Market Routine
- Scan for gap patterns
- Check news and earnings
- Review overnight futures
- Identify key levels
During Market Hours
- Wait for pattern completion
- Confirm with volume
- Execute with discipline
- Manage risk actively
Post-Market Review
- Analyze winning trades
- Study losing trades
- Update watchlists
- Plan next day
This routine keeps you sharp and profitable.
Psychological Challenges
Trading patterns like this tests your emotions.
Here’s how to stay disciplined.
FOMO (Fear of Missing Out)
You’ll see setups after they’ve already moved.
Don’t chase.
Wait for the next one.
Revenge Trading
After a loss, you’ll want to trade bigger to make it back.
Don’t.
Stick to your rules.
Overconfidence
After a few wins, you might get cocky.
Stay humble.
The market humbles everyone eventually.
Technology and Tools
You don’t need expensive software to trade this pattern.
Basic Requirements
- Charting platform with candlestick charts
- Volume indicators
- Basic drawing tools
- Stock screener
Advanced Tools
- Pattern recognition scanners
- Backtesting software
- Real-time alerts
- News feeds
Start with basics.
Upgrade as you become profitable.
Frequently Asked Questions
What is the success rate of downside tasuki gap pattern?
In trending markets, I see about 65-70% success rate.
But this varies based on market conditions and your execution.
Can this pattern work in uptrends?
Technically yes, but the success rate drops significantly.
I only trade it in downtrends or corrections.
What timeframe works best for beginners?
Start with daily charts.
They’re less noisy and give you time to think.
How long does it take for the pattern to play out?
Usually 5-10 trading days.
Sometimes longer in slower-moving stocks.
Should I use market or limit orders?
I prefer limit orders for entries.
Market orders for stop losses.
What’s the minimum gap size for validity?
At least 1% gap for stocks.
Smaller gaps often get filled quickly.
Can I trade this pattern with options?
Yes, but be careful with time decay.
Stick to at-the-money puts with 30+ days to expiration.
How do I practice this pattern without risking money?
Use paper trading or trading simulators.
Practice for at least 3 months before going live.
What’s the biggest mistake traders make with this pattern?
Trading it in the wrong market conditions.
This pattern needs trending markets to work.
How do I scan for these patterns efficiently?
Most charting platforms have pattern scanners.
Set alerts for gap down situations in downtrending stocks.
My Final Thoughts on Trading the Downside Tasuki Gap
Look, trading isn’t about finding the perfect pattern.
It’s about finding patterns that work more often than they fail.
The downside tasuki gap candlestick pattern is one of those reliable setups.
But only if you trade it right.
Start small.
Practice on paper first.
Focus on high-probability setups in trending markets.
Manage your risk like your life depends on it.
Because in trading, it kind of does.
The market will always be there tomorrow.
Make sure your account is too.
Remember – this pattern works because human psychology doesn’t change.
Fear and greed drive gaps.
And gaps in downtrends usually continue.
That’s your edge.
Use it wisely.
The downside tasuki gap pattern can be your secret weapon in bear markets – just make sure you’re trading it with discipline and proper risk management.
