The falling window is a pattern you can use to identify a potential breakout from a consolidation period. It consists of two bearish candlesticks with the distance between them being the down gap. The candlestick following the two bears has to break through that gap for this pattern to be valid.
It is a bearish trend continuation pattern that indicates the strength of the sellers in the market. The price will continue to drop when a falling window is formed on the price chart.
How to identify a valid falling window pattern?
To find out a perfect falling pattern on the price chart, follow the following steps
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A good indication of a bearish trend is when you see two bearish candlesticks with a significant gap between the high of the most recent candlestick and the low of the previous. Note that the gap should be wide enough to embody any drastic change in sentiment, but not so wide that it spans an extended period
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Bearish candlesticks with large bodies are a sign of heavy market activity, indicating the momentum of sellers.
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When the price is on a bearish trend, the formation can form.
In forex trading, the falling window pattern acts as a powerful trend continuation indicator. It succeeds in the market because it is correlated with a bearish price trend.
As a trader, you should avoid trading a falling window pattern that forms above the support zone because this will signal trend continuation. If you wait for the pattern to form after the breakout of the support zone, then it is more likely to represent a good opportunity.
Falling Window Pattern: Information Table
| Features | Explanation |
|---|---|
| Number of Candlesticks | 2 |
| Prediction | Bearish trend continuation |
| Prior Trend | Bearish trend |
| Counter Pattern | Rising window candlestick |
What does the falling window candlestick pattern tell traders?
The falling window pattern is split into two parts and each one has a different thought.
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Two bearish candlesticks
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Down gap
By looking at the price of the asset, you may be able to determine what professional traders are doing behind-the scenes.
A bearish candle signals that the price for a day has closed below the opening price for that day. This can be interpreted as sellers were controlling most of the trade and overcame buyers to bring the price down.
Pro tip: Watch for a single large red candle on the price chart – it could signify that the market makers are making the market bearish.
As a result of a large number of selling orders being filled at once, a down gap appears on the price chart. Consequently, a gap will appear on the chart, causing the price movement to spike.
You should understand that a down gap and two bearish candlesticks mean sellers are in control of the market. Therefore, the market is moving downward due to the huge pressure from sellers. This pattern can be used to predict the continuation of bearish trends as it consists of three confluences.
How to trade falling window pattern?
The gap in a falling window will also act as a resistance zone. Given that a large amount of sell orders are at this level, the price won’t be able to move up until they have been cleared out.
As with the falling window pattern, it is difficult to tell whether price will continue downwards after the downward move following, or if they will pull back a bit towards the gap zone to eliminate some of the sell orders.
Trading falling window patterns is possible through two methods. If the price does not pull back to the gap zone after the candlestick formation, you can place sell orders. This will yield a high-risk-high-reward trade setup.
Conclusion
Candlesticks with falling windows are very useful for forecasting stocks and indices over the long-term. These candles tell you when the market is in a bear market.
To master the pattern, I highly recommend that you backtest it 100 times.
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