Hello, Dear Readers. Traders in financial markets are in pursuit of their dreams. Financial markets are the very path to success and financial freedom. In order to succeed here, we need to know the trading rules, and technical analysis is the first thing that comes to mind. The formation, reasons, and signals of Japanese candlestick patterns in technical analysis are our first step towards understanding. One of these patterns is the "Falling Window" candlestick pattern that we will talk about today.
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| Falling Window Candlesticks |
- Topic: Falling Window
- Type: bearish
- Trend direction: continuation
- Opposite pattern: Rising Window
What is the "Falling Window" candlestick pattern?
The Falling Window is basically a bearish candlestick pattern made up of two candles. In simple terms, it shows up during strong downtrends and usually tells us that the drop in price is not over yet. When this pattern appears on the chart, it often means sellers are still in control, and the market could keep moving lower.
The way it works is simple. First, one candle closes, and then the next one opens much lower, leaving an empty space between them. This empty space is called a "window," or in trading terms, a "gap." When such a gap appears, it usually means there is strong selling activity and weakness in the market. Put differently, the Falling Window is like a warning sign that the downward movement is likely to keep going.
Traders usually see this pattern as a confirmation that the bearish trend is still strong, and that buyers are not yet ready to take back control. So if you spot a Falling Window in the middle of a downtrend, the probability of the decline continuing becomes even higher.
The Structure of the Falling Window candlestick pattern
The Falling Window candlestick pattern consists of two
consecutive candles, with a downward gap between them. This pattern occurs when
bears are dominant in the market over bulls. Dominant bears can continuously
push prices downward. The most noticeable element in the pattern structure is
the gap between two candles. This gap indicates increased selling intensity and
a rapid drop in price below the closing price of the previous candle. Here is
the structure of the Falling Window candlestick pattern:
Two bearish candles
The pattern starts with two strong red candles that appear one after the other. These candles usually have long bodies, which shows that sellers are dominating the market. The length of the candles reflects the intensity of the selling, and it's clear that the market is leaning downward. Both candles together form the basic shape of the Falling Window, giving traders an early indication that the downward trend is continuing.
Downward gap
Between these two bearish candles, there is a noticeable gap. This happens when the second candle opens well below the closing price of the first one, leaving an empty space on the chart. The gap stretches from the lowest point of the first candle to the highest point of the second. Such gaps often appear when the market reacts suddenly to news or economic events, showing intense selling activity in the market. This empty space is called a "window", and it's what gives the pattern its name — the Falling Window.
The Falling Window pattern is usually defined by the price
opening at a level lower than the previous level and the presence of a gap
between them. This structure indicates that the price came with a sudden drop
and suggests that the bearish trend may continue.
Trading with Falling Window candlestick pattern
The Falling Window candlestick pattern mainly occurs when
the downward trend strengthens. Sellers in the market gain an advantageous
position, and the increased risk of price decline can trigger selling. When an
asset is already in a downtrend and the Falling Window pattern forms, it is
considered a technical analysis rule that suggests the asset's price could
further decrease, indicating a continuation of the downward trend. However,
when trading in financial markets like Forex, it's important to avoid rushing
and instead approach with patience, considering other technical and fundamental
factors.
- Sell (Short): Selling can be done below the closing price of the second bearish candle.
- Stop Loss: The stop loss order can be placed above the high of the first bearish candlestick or above the gap.
- Take Profit: Targets are generally determined based on the asset's price movement and the risk-reward ratio of the trading strategy.
Below, we provide a detailed trading example that illustrates how the Falling Window pattern manifested in the American Airlines Group stock price. This example demonstrates how the pattern signaled the continuation of a downtrend, highlighting the impact of the pattern on price movement and trading strategies.
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| Falling Window reflects downtrend continuation in AAL stock. |
Kindly be aware that: Remember, the reliability of candlestick patterns is limited, and they are not sufficient on their own. None of the candlestick patterns guarantee definite success. The Falling Window pattern is not a standalone trading signal and should be used in conjunction with other technical indicators and formations. Always pay attention to risk management. May your trades be profitable!