Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30 years of stock market experience and widely regarded as a leading expert on chart patterns. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into seven languages. He may be reached at

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Bulkowski's Downside Tasuki Gap

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 02/07/2012

12,878 33.07 0.3%

5,323 -10.92 -0.2%

452 2.11 0.5%

2,904 2.09 0.1%

1,347 2.72 0.2%

YTD

5.4%

6.0%

-2.7%

11.5%

7.1%

Tom's Targets Overview: 02/03/2012

13,100 or 12,400 by 02/15/2012

5,500 or 5,150 by 02/15/2012

470 or 440 by 02/15/2012

3,100 or 2,800 by 02/15/2012

1,375 or 1,300 by 02/15/2012

Test Portfolios and CPI

Indus. strength: 2.4%

Mutt Losers: None YTD

Mutt Winners: 2.5%

Wilder RSI: None YTD

CPI:

on 12/20/2011

In my book, Encyclopedia of Candlestick Charts, pictured on the right, I explore the entire range of candlestick patterns from abandoned babies to windows (not exactly A to Z, but you get the idea), in both bull and bear markets, using almost 5 million candle lines in the tests.

The book takes an in-depth look at 103 candlestick patterns and reports on behavior and rank (3 types: reversal rate, frequency, and overall performance), identification guidelines, performance statistics (tables of general statistics, height, and volume), trading tactics (tables of statistics on reversal rates and performance indicators), and wraps each chapter with a sample trade. I share a sliver of that information below. If you like what you read here, then you will love the book. Help support this website and buy a copy by clicking on the above link.

The downside Tasuki gap is supposed to be a bearish continuation pattern, but testing shows that it acts as a bullish reversal, ranking 47th out of 103 candle patterns. That is, of course, mid list. The frequency rank is 68 which suggests you will not find one of these in every grocery store. Perhaps they are only in the finer department stores where the high dollar items are sold. Anyway, the overall performance is quite good, and a check of the numbers shows that the downside Tasuki gap is a respectable performer in all markets except for downward breakouts in a bull market.

Important Results

Discussion

Identification Guidelines

Three Trading Tidbits

Example

Downside Tasuki Gap Important Results

Theoretical performance: Bearish continuation

Tested performance: Bullish reversal 54% of the time

Frequency rank: 68

Overall performance rank: 23

Best percentage meeting price target: 44% (bear market, down breakout)

Best average move in 10 days: 4.69% (bear market, up breakout)

Best 10-day performance rank: 30 (bull market, up breakout)

All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Downside Tasuki Gap

Downside Tasuki Gap Discussion

As I mentioned in the introduction, the downside Tasuki gap is supposed to act as a bearish continuation, but testing shows that it acts as a bullish reversal 54% of the time. That is what I call "near random." However, the overall performance rank is 23rd so the post breakout trend is a decent one.

The best average move 10 days after the breakout is a rise of 4.69% in a bear market. I consider moves of 6% or higher to be good ones, so this is well short of appealing. The best 10 day performance rank is 30th out of 103 candles after an upward breakout in a bull market. Since that represents the highest rank, the pattern could be a much stronger performer when compared to other candlestick types.

Downside Tasuki Gap Identification Guidelines

Characteristic	Discussion
Number of candle lines	Three.
Price trend leading to the pattern	Downward
Configuration	Look for a black candle in a downward price trend followed by another black candle, but this one gaps lower with no shadow overlap between the two candles. The final day sees a white candle print on the chart, one that opens within the body of the second candle and closes within the gap between the first and second candles.

Three Trading Tidbits for Downside Tasuki Gap

If you want a few bones from my Encyclopedia of candlestick charts book, here are three to chew on. The pages refer to the book where the tips appear.

Downside Tasuki gap candles that appear within a third of the yearly low perform best -- page 301.
A 4 to 6 week downward move with a downside Tasuki gap is likely to see a reversal -- page 304.
Look for the downside Tasuki gap to form as part of an inverted and ascending scallop -- page 304.

Downside Tasuki Gap Example

The downside Tasuki gap candlestick on the daily scale

The chart shows a downside Tasuki gap circled in red on the daily scale. In this example, price trends lower for two months leading to the first black candle of the downside Tasuki gap.

The next day, price gaps open lower forming another black candle but leaving a small space (price gap) between the bottom of the first candle and the top of the second. The last day a white candle appears that opens within the body of the second candle and closes within the gap, completing the downside Tasuki gap.

The trend leading to the downside Tasuki gap is downward and so is the breakout (a downward breakout occurs when price closes below the bottom of the chart pattern). Anyway, this downside Tasuki gap acts as a bearish continuation pattern, just as candle theory predicts.

-- Thomas Bulkowski