What is a Window?
Most of candlestick patterns are considered reversal. There are some patterns that usually imply continuation of the trend. Falling and Rising Window formations are among them. We could also consider three white soldiers, falling three methods, rising three methods, and separating lines as other candlestick continuation patterns.
The window formation is similar to gap formations in bar charts. They basically mean that there is a price gap between two consecutive candles. Window formations fall into falling and rising categories. Such formations usually appear when the market opens after weekends or when a surprising news release suddenly pushes the market in one direction.
The Rising Window Candle Pattern
This pattern takes shape when the low of the current candle is higher than the high of the previous candle (see image). You may see such windows in daily charts, intraday charts, or even weekly and monthly charts.
The size of the gap could be one pip or several pips. The window is valid only if there is a gap between highs and lows not the real body of the candles.
We consider this formation as a bullish pattern. We expect to see an increase in the price or rather a rally when the formation appears on a chart. Although it is said that gaps are eventually filled this could take a long time so you can benefit from the current movement in your favour.
To be on the safe side consider this. The window or rather the gap between the high of the last session and the low of the current session acts like a support zone. If the future candles manage to penetrate this zone but they do not close there then you could consider the window pattern still in control (i.e. a bullish move). However, if a future candle closes in the support zone and especially below the critical support line then you may expect a reversal in the market direction. The critical support line passes through the lowest point of the window.
Remember that Technical Analysis is more of an art than a science, so none of these rules are set in stone. As a general rule of thumb, a quick closure in or especially below the support zone makes the window invalid. If the window appears in the middle of a strong uptrend then it is usually more reliable.
If you are dealing with more than one rising windows in an uptrend then you could consider the trend reversed when all the support zones are breeched. As an alternative method you may consider the third window a sign of reversal in the trend. I personally suggest being more careful with trading consecutive rising windows.
The Falling Window Candle Pattern
Falling window appears when the high of the current candle is lower than the low of the previous candle. This formation has many similarities with the rising window but with bearish implications (see image).
Falling window is a bearish formation. It defines a resistance zone. If future candles do not close in the resistance zone especially above the critical resistance line then this bearish effect remains valid. I have personally seen more falling windows in the forex market than rising windows.
You may use other technical tools such as Fibonacci Retracement or Expansion to locate your profit target but if you enter a trade with this tool I personally suggest placing your stop loss at the critical resistance line or a few pips above it. A more flexible approach is to place SL through the high of the first candle. It could help you deal with whipsaws.
Locating Window Formations in a Chart
Locating windows in a chart was the easiest task I had as a programmer. All I needed to do was to locate gaps. I consider a gap valid if it is at least one pip high (see image).
The up-arrows or down-arrows appear on the second candle. I also encourage you to consider the recent trend or market movements and also other technical tools prior to trading window formations.
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