Window Candlestick Patterns Explained: What They Are & How To Trade Them

 

What Is a Window Pattern?

A window pattern is a 2-candlestick formation that may signal a continuation.  It is made up of two large candles moving in the direction of current trend with a gap between them.

The window candlestick pattern has both bullish and bearish variations, called the rising window and falling window, respectively.  It is also a precursor to the tasuki gap.  For both patterns, the unfilled gap represents a make-or-break price band that could shape upcoming price action.

Of course, no candlestick pattern guarantees a particular outcome.  Instead, they offer clues as to what is going on in the market.

So the question is, what does a window really tell you?

What Window Patterns Mean

Like many candlestick patterns, the name itself doesn’t reveal much.

And unlike some, English speakers do not use the Japanese name for it.  The term “window” probably comes from how it looks.  The long candles are like the top and bottom panels of an open window, with the gap representing the opening itself.

In trading terms:

• During the first period, price drove strongly in the direction of trend.
• Between periods, price continued driving in the same direction.
• During the second period, price yet again continued driving in the direction of trend.

This sets the stage for continuation, as countertrend pressure seems to be all but nonexistent.

How To Recognize Window Candlestick Patterns

Traders are attracted to patterns partly because they are easy to spot.

However, it’s also easy to see things on the charts that aren’t truly there (or anticipate events that never come to fruition).  That’s one of the reasons why waiting for confirmation is so important.

Technically, a window pattern must:

• Have two long candles moving with trend
• Have a gap between both candles

In practicality though, many traders will make various exceptions.

• The first candle doesn’t necessarily have to be a long candle, as long as it is a candlestick that gives a strong bias in the direction of trend (such as a dragonfly doji or gravestone doji).
• The second candle doesn’t necessarily have to be a long candle, as long as the first one is and the gap remains unfilled.

Depending on who you ask, any of these standards may be more or less important.  Moreover, some of these variations may be more properly classified as other continuation candlestick patterns, such as the tasuki gap.

Remember, identifying the reversal itself is more important than labeling the formation.  That’s not to say these standards are completely unimportant (as we’ll touch on shortly).  It’s just to say that the implications are more important than the criteria.

In other words, you need to put it into context.

Where Windows Fit in the Chart Narrative

The markets are often characterized as a battle between the bulls and the bears.

Window patterns show that one side pressed their advantage on candle one, continued between candles one and two, and continued further through the end of two.

On the chart, it looks like a runaway train.

It might happen like this on a daily time frame:

After a strongly trending day, traders awoke the next day to a price gap.  This led to widespread euphoria for those on the side of the trend and despair for those trading against it.  Those in control wasted no time putting the opposition to the sword, pushing price to close well beyond the gap.

In the short-term, it amounts to an uncontested offensive.

The question traders need to ask themselves is, “Is there an end in sight or is the market in for even more dramatic moves?”

To answer that question, you’ll need more than just an understanding of Japanese candlesticks and candlestick patterns.  You’ll want to analyze both within the context of greater chart patterns as well as trend and price levels.  You’ll also want to make use of your own chart markup and indicators.

Analyze the history of your preferred asset(s) with respect to window patterns and apply it to your own trading style.

Now, you can test (and/or stretch) the criteria we mentioned above to find the most tradeable opportunities.  For example, you may find that windows made of two marubozu candles perform more reliably than those with other candlestick types.  Or, you may find something else entirely.

Here is where the story in the charts begins to come into focus.

This is what we call technical analysis.

How To Trade Window Patterns

Continuation points are great places to add to your position or adjust your stop loss.

Window patterns serve as easy-to-spot signs of potential continuation that may serve as a springboard for the next big leg up or leg down.

Generally, you can put more weight into multi-stick patterns than single candles.  They give you more information over a longer amount of time.  Still, it is considered unwise to trade based on candlestick patterns alone.  They rarely have extremely high hit rates by themselves.

You need additional points of confluence to shift the probabilities in your favor.

Some of the more important ones include:

• Volume – Conventional wisdom says that elevated trading volume on either candle increases the likelihood of continuation.  You might even look for it just after.
• Price Formations – Continuation patterns like the window tend to perform better when there is thin support or resistance in their way.  If it’s a blue sky breakout, even better.
• Matching Momentum – Oscillating indicators like the RSI or stochastics are commonly used to identify continuation by analyzing slope, percentile, and/or divergence.

The fewer such factors corroborating the continuation, the less confident you can be about it.

It would be difficult to form a comprehensive trading strategy around window patterns.  There simply isn’t enough there to develop a strong edge.  Even with a great understanding of trading math, orders, psychology, risk management, options, and automation, you’d still have a hard time.

You’re much better off building your strategy around other tools then using continuation patterns as an additional point of confirmation.

Patterns like the window are much better idea givers than trade makers.

Other Candlestick Pattern Types

The window is but one of many candlestick patterns.

You’d be wise to get familiar with all of the other ones too.

• Abandoned Baby
• Breakaway
• Counterattack Lines
• Doji Star
• Engulfing
• Harami
• Harami Cross
• In Neck
• Kicking
• Ladder
• Last Engulfing
• Mat Hold
• Matching
• Meeting Lines
• On Neck
• Separating Lines
• Star
• Stomach
• Tasuki Gap
• Three Inside
• Three Methods
• Three Outside
• Three-Line Strike
• Tri-Star
• Tweezer

Sure, there are quite a few of them.  But don’t let that intimidate you.

It’s unnecessary to memorize all the names and criteria for every pattern.  What’s more important is to learn the principles of price action and technical analysis.

In fact, you’re free to forget all of the names and specifications as long as you can look at a group of candlesticks and understand what they are trying to tell you.

Takeaways

To review:

Windows are a type of candlestick pattern that signals a potential continuation.  While not a guarantee, their appearance may indicate that market conditions are going to remain the same.  Thus, they can help you find winning trades.

Of course, there are other candlestick patterns that you should learn about.  And even so, the ability to recognize patterns is not enough to trade successfully on its own.

Nonetheless, you’ve now added one more tool to your toolkit.

Have questions or more information to add?  Contribute to the conversation in the comments below!  Or, if you know someone who could benefit from this post, share it with them.  You can also check out our Candlestick Patterns Guide to improve your candlestick analysis skills.