Falling Window Candlestick Pattern – What Is And How To Trade

Everything that you need to know about the Falling Window candlestick pattern is here.

Today you’ll learn:

What Is The Falling Window Candlestick Pattern
How To Identify The Falling Window Candlestick Pattern
Variants Of The Falling Window Candlestick Pattern
How To Trade The Falling Window Candlestick Pattern
Strategies To Trade The Falling Window Candlestick Pattern
What Is The Success Rate Of The Falling Window?
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What Is The Falling Window Candlestick Pattern

The Falling Window is a Japanese candlestick pattern.

It’s a bearish continuation pattern.

Usually, it appears as a pause after a price move to the downside and shows rejection from higher prices.

The pattern is bearish because we expect to have a bear move after the Falling Window appears at the right location.

It’s a continuation pattern because before the Falling Window appears we want to see the price going down, thus it’s also a frequent signal of a trend continuation.

The Falling Window pattern is also a mirrored version of the Rising Window candlestick pattern.

How To Identify The Falling Window Candlestick Pattern

The Falling Window candlestick pattern is formed by two candles.

Here’s how to identify the Falling Window candlestick pattern:

Two consecutive solid big red candles
Between both candles, there’s a gap

It looks like this on your charts:

Variants of the Falling Window Candlestick Pattern

The Falling Window candlestick pattern may appear a little different on your charts.

The candles may or not have wicks.

The wicks may have big sizes, ideally at the top, not at the bottom.

Here’s what it may look like on your charts:

How To Trade The Falling Window Candlestick Pattern

To trade the Falling Window candlestick pattern it’s not enough to simply find a series of candles with the same shape on your charts.

Let me explain.

What makes a pattern valid is not just the shape, but also the location where it appears.

This means that the same shape appearing at different locations may have different meanings.

When trading the Falling Window, we want to see the price first going down, making a bearish move.

A Falling Window appearing after this bearish move is a sign of a possible trend continuation to the downside.

It looks like this:

Now you’re thinking.

“When do I open my trade?”

It’s simple, the Falling Window pattern is traded when the low of the last candle is broken.

That’s your conservative trigger to short.

It looks like this:

Alternatively, you can also wait for a pullback to retest the gap. Although the entry would eventually be at a better price, it can also lead to missing entries, if the price never comes back to that level.

Now, you also want to protect yourself because when trading things don’t always move as we expect.

And for that, we use a stop loss.

There are several different types of stop losses.

The most common is to use the other side of the pattern to set it.

Like this:

But wait, don’t jump into trading the Falling Window right yet.

There are a few more things to know.

Ideally, to increase the accuracy, we want to trade the Falling Window candlestick pattern by combining it with other types of technical analysis or indicators.

Here are a few strategies to trade the Falling Window pattern.

Strategies To Trade The Falling Window Candlestick Pattern

Strategy 1: Pullbacks On Naked Charts

As a bearish continuation pattern, the Falling Window is a great pattern to watch for when the price is on a downtrend.

Just wait for a pullback to start, and then spot when the Falling Window appears.

That often signs the end of the pullback and the start of the new leg to the downside.

Here’s an example:

Strategy 2: Trading The Falling Window With Support Levels

Support and resistance levels are great places to find entries.

Since we are looking for continuation moves to the downside, we want to trade the Falling Window using support levels broken and retested.

How does it work:

Draw support levels on your charts
Wait for the price to move to the downside hitting the support level and breaking it
After that, you want to see the price coming back to retest the support
Check if a Falling Window appears at that level
Short when the price breaks the low of the last candle of the Falling Window
Set your stop loss and take profit levels, and expect a move to the downside

Here’s an example:

Strategy 3: Trading The Falling Window With Moving Averages

Moving averages are great trading indicators to trade trends.

The idea here is to trade pullbacks to the moving average when the price is on a downtrend.

How does it work:

Find a downtrend, with the price jumping below a moving average
Wait for the price to go up and hit the moving average
Check if a Falling Window appears at the moving average
Short when the price breaks the low of the last candle of the Falling Window
Set your stop loss and take profit levels, and expect another leg to the downside

Here’s an example:

Strategy 4: Trading The Falling Window With RSI Divergences

This is a bit different from the other trading strategies.

To find a bearish RSI Divergence we want to see the price on an uptrend first, making higher highs and higher lows.

Here’s how it works:

Find an uptrend
Mark the highs that the price makes after each leg to the upside
At the same time compare the price highs with the RSI indicator
When you see the RSI making lower highs while the price making higher highs, you found your divergence
Now you wait until a Falling Window appears at a price higher high, aligned with an RSI lower high.
Short when the price breaks the low of the last candle of the Falling Window
Set your stop loss and take profit levels, and expect a move to the downside.

It looks like this:

Strategy 5: Trading The Falling Window With Fibonacci

Another popular way of trading the Falling Window candlestick pattern is using the Fibonacci retracement tool.

Fibonacci shows retracement levels where the price will tend to revert frequently.

Depending on the strength of the trend, different levels are more likely to work better with the Falling Window pattern. Here you can learn more about the different Fibonacci retracement levels.

Here’s how the strategy works:

You want to see the price on a downtrend, or at the start of a new one
Then you wait for a move to the upside, they always happen at some point
Pick your Fibonacci tool and draw the levels from the high to the low of the move
When the price hits a Fibonacci level and prints a Falling Window, that’s what you are waiting for
Short when the price breaks the low of the last candle of the Falling Window
Set your stop loss and take profit levels, and expect a move to the downside

Here’s an example:

Strategy 6: Trading The Falling Window With Pivot Points

Pivot Points are automatic support and resistance levels calculated using math formulas.

If you are day trading, the Daily Pivot Points are the most popular, although the Weekly and Monthly are frequently used too.

Here’s how to trade the Falling Window pattern with Pivot Points:

Activate the Pivot Points indicator on your charts
Check which Pivot Points are below the price, those will tend to work as resistances when broken
Ideally, you want to see the price on a downtrend
Wait for a price move to the downside to a Pivot Point level and a break
At that level, you want to see the Falling Window pattern appearing and retesting the broken pivot point
Short when the price breaks the low of the last candle of the Falling Window
Set your stop loss and take profit levels, and expect a move to the downside

What Is The Success Rate Of The Falling Window?

According to the Encyclopedia of Candlestick Charts by Thomas N. Bulkowski (link), the Falling Window candlestick pattern has a success rate of 73%.

This is what you learned today

The Falling Window is a two-candle pattern.
To be valid, ideally, we want to see it during a downtrend.
It’s a bearish continuation pattern, meaning that it signs a potential continuation of a downtrend.
To increase the accuracy, you can trade the Falling Window using pullbacks, moving averages, and other trading indicators.
The winning rate of the Falling Window is 73%.

Now I want to hear from you.

Do you trade the Falling Window candlestick pattern?

Let me know in the comments below.