Bridging the Gap
Before you can start to use patterns like the upside tasuki gap to your advantage, you have to understand the methodology that they come from. In the earliest centuries of the rice trade, Japanese investors interested in the rice trade learned that by analyzing the price points for each day, they could learn how to predict the direction in which the market would move. Over the years, this principle was applied in different ways and become the basis for technical analysis as we now know it.
The upside tasuki gap is a continuation trend that is found when using candlestick tracking charts. There are three parts to this trend, and it’s important that you find each element before you establish that this is in fact the pattern that has formed. First, look for a big white candlestick that defines a definite uptrend. Then, look for a second white bar that has gapped and closed above the close of the previous white bar. Lastly, look for a red candlestick that will close the gap between the first two white bars. The red candlestick doesn’t need to fully close the between the two white candlesticks in order to signify an upward gap.
Because this candlestick formation is used by technical analysts to spot a continuation of the current trend, it is very important that you are able to look for all three elements of the trend, and don’t confuse them with other similar movements. Avoid getting ahead of yourself by buying frantically, which will only send increase the price too quickly, and will ultimately result in a slight price drop once the dust has settled.