Falling Window Candlestick Pattern: In the field of stock market analysis, technical analysts utilize chart and candlestick patterns to assess stock prices and project future trends. Each pattern holds valuable information that provides insight into the market’s direction.
Through analyzing and interpreting these patterns, analysts can make informed predictions regarding the future movements of stocks, thus enabling investors to make well-informed investment decisions.
In this article, we will discuss about Falling Window Candlestick Pattern, its characteristics, and the steps to trade using this pattern.
Falling Window Candlestick Pattern
The falling window candlestick pattern is a two-candlestick pattern that strongly indicates the bearish movement of the price. A two-candlestick pattern is only called a falling window pattern if both the candlesticks are bearish candles and there is a gap between the two candlesticks. Meaning, that the second candle’s high should be lower than the low of the first candle.
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The falling window candlestick pattern is generally used for bearish continuation indication. If it appears in a downtrend it generally indicates the continuation of a bearish momentum. So its appearance gives traders an indication to hold on to the short position if one has already taken a short position and it also gives an indication to take a new short position in the security.
Falling Window Candlestick Pattern – Formation
Two conditions need to be filled in for a two-candlestick pattern to be called a falling window pattern:
Condition 1 – both candles need to be bearish (red) candles.
Condition 2 – there should be a gap between the two candles. The high of the second candle should be lower than the low of the first candle.
A Falling Window Candlestick Pattern is formed quite often in the market in both a downtrend and an uptrend. But it is generally used to get a bearish continuation indication.
Falling Window Candlestick Pattern – Psychology
The second candle in this pattern opens with a gap down because of the high selling pressure in that time frame. The selling pressure is so high that the second candle’s high price doesn’t even come near the low price of the first candle.
The formation of the falling window forms a negative outlook and more sellers will come into the market. This is why the price generally moves lower after the formation of a falling window pattern.
The gap between the two candles also acts as a resistance zone and whenever the price retraces to that zone, there might be more sellers in the market. Thus potentially pushing the price down.
Key Characteristics of Falling Window Pattern
- The two candles formed are bearish (red candles) with a gap between the low price of the first candle and the high price of the second candle.
- This pattern gives a bearish continuation indication and indicates a bearish momentum.
- The gap between the two candles acts as a resistance zone.
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Falling Window Candlestick Pattern – Trading Ideas
Traders must ensure that the prior trend before the formation of this pattern is a downtrend. Once this pattern is formed in a downtrend, the following are the guidelines to take a trade:
- Entry – Once the price of the security starts trading below the close price of the second candle of this pattern, traders can enter a short position in the security.
- Target – Traders can exit the trade when the price of the security reaches near the immediate support zone. Once this level is reached, one can also book partial profits in the trade and hold on to the remaining position until the next support level.
- Stop loss – the stop loss should be placed right above the ‘gap’. Meaning, the stop loss needs to be placed at or just above the close price of the first candle.
Falling Window Candlestick Pattern – Example
In the above chart of ICICI BANK, the time frame is 1 day. We can observe the formation of the falling window pattern during a downtrend. The formation of this pattern indicated the continuation of the bearish momentum.
At the time of the formation of this pattern, traders could have taken a short position when the price went below Rs. 175.75 and placed a stop loss at Rs. 180.55
Read more: Understanding Harami Candlestick Pattern
Conclusion
In this article, we discussed one of the most frequently appearing candlestick patterns, the Falling Window Candlestick Pattern. A falling window pattern can appear anywhere in the market, its formation generally indicates a bearish momentum.
But it is recommended to take a sell trade only when this pattern appears in a downtrend rather than when it appears on an uptrend as it is historically observed to work better as a bearish continuation indication.
Traders must not take a trade just based on the formation of this pattern but should also include other technical tools and indicators to confirm the price prediction. What are your views about this pattern, please let us know in the comment section below.
Written by Praneeth kadagi
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