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

Playing Markets

Falling window patterns are fairly rare but give a clear signal.

Since candlesticks are the basic building block of most technical analysis, the ability to recognize different candlestick patterns is a crucial trading skill.

First though, let’s start with a definition.

In this Guide to Falling Window Patterns, we’ll explain:

What They Mean
How To Recognize Them
Where They Fit
How To Trade Them
Similar Candlestick Patterns

What Is a Falling Window Pattern?

A falling window pattern is a 2-candlestick formation that may signal a bearish continuation. It may appear during a downtrend and is made up of two large bearish candles with a gap between them.

It is the bearish version of the window pattern, making it the opposite of the rising window. It is also a precursor to the downside tasuki gap. For both, 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 Falling 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 continued the pre-existing downtrend.
The second period opened with a gap down and continued driving downward.

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

How To Recognize Falling 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 falling window pattern must:

Appear during a downtrend
Begin with a bearish long candle
Have a gap down after the first candle
End with another bearish long candle

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 bearish bias (such as a gravestone doji).
The second candle doesn’t necessarily have to be a long candle, as long as it is bearish and does not fill the gap.

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 downside 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 Falling Windows Fit in the Chart Narrative

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

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

On the chart, it looks like a runaway train.

It might happen like this on a daily time frame:

Just before the market opened on the first day, devastating news broke that sparked outright panic in an already bearish environment. That day, price plummeted. But it didn’t stop there. After the market closed, price continued to drop. Once the market opened on the second day, even more sellers joined in as everyone assumed the worst-case scenario. Predictably, the total losses on day two were even larger than day one.

From here, the bulls are left to pick up the pieces as bears toast their luck.

In the short-term, it amounts to a one-sided beat-down.

The question traders need to ask themselves is, “Can the bulls muster any sort of response or will the onslaught continue?”

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 the larger the gap, the more reliably falling windows play out. 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 Falling Window Patterns

Bearish continuation points are great places to add to your short position or move your stop loss down.

Falling window patterns serve as easy-to-spot signs of potential bearish continuation that may serve as a launch point for the next big 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 – For bearish continuation, you typically want to see higher trading volume as price moves lower. Therefore, falling windows accompanied by a volume spike may be a good omen.
Price Formations – Bearish continuation patterns like the falling window tend to perform better when there is thin (or non-existent) support in their way. The further below and weaker the 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 (whether bullish or bearish). 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 falling window is but one of many candlestick patterns.

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

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:

Falling windows are a type of candlestick pattern that signals a potential bearish 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.