Windows

Windows is a very interesting concept on candlestick charts. Basically, Windows means gap between two candles.

For example, the low price of the candle is higher than the high price of the previous candle. So, you will see the gap between the two candles. It is known as a ‘Gap’ as per the western methods and ‘Window’ as per Japanese methods.

The Windows provide us useful information about the bullishness or bearishness in the price action. The gapped-up candle, when the low price of current candle is higher than the high price of previous candle is a bullish price action. Not only price gapped up but also maintained it throughout the session. This bullish window formation is known as a Rising Window.

Same way, the bearish window is known as a Falling Window pattern. When the high price of current candle is lower than the low price of the previous candle, it is known as a Falling Window pattern. It is a bearish formation.

Rising Window is a bullish pattern and Falling Window is a bearish pattern. The colour of candles doesn’t matter in case of rising or falling window.

To define the window, the price information of two candles is required. Therefore, Rising and Falling Window are two-candle patterns. Price is expected to move up after the Rising Window and price is expected to fall after the Falling Window unless the Windows are closed.

Closing of Window

In case of the Rising Window, the low price of current candle is higher than the high price of previous candle. If price in subsequent candles comes down and trades below the window area (high price of first candle of the Rising Window formation) – the Rising Window is said to be closed.

In case of the Falling Window, the high price of current candle is lower than the low price of previous candle. If price in subsequent candles moves up and trades above the window area (low price of first candle of the Falling Window formation) – the Falling Window is said to be closed.

There was a vacuum in that area, which is closed. The gap is filled.

Three Candle Rule

If a Window is not closed within next three candles, then it is a bullish sign and indicates that the momentum is strong.

Hence, if a Rising Window is not closed within next three candles, it is a bullish event and bullish trades can be planned with the stop-loss below the window price area. If a Falling Window is not closed within the next three candles, bearish trades can be planned with the stop-loss above the window price area.

A scanner for windows closed within 3 sessions is available in all our Definedge Securities analysis software and trading terminals.

Click here to learn more about the pattern.

This pattern can be plotted on the chart by adding it from the Add study menu in TradePoint & Patterns in RZone. The pattern is also available in the System Builder section. By combining this pattern with other patterns and indicators, you can create your own trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.