Japanese traders often call the price gap – the Window. Western analytics say “close the gap”, Japanese analysts, in its turn, say “close the window”.
Window models are related to the continuation patterns of the Japanese Candlestick Analysis.
This article will review cornerstone Window patterns: Tasuki Gap, Gapping Plays, Side-by-Side White Lines.
Window is the price gap between Lowest/Highest point of the candle and Highest/Lowest point of the previous candle bar. In the up-trending market, Window may appear between the Lowest part of the current candle and the Highest point of the past candle. For the down-trending market – vice versa.
The doctrine says that Window appearance approves trend direction. So, on the up-trending market, after Window formation trader should consider setting long (buy) positions. Windows, as well, appear to be important Support/Resistance levels.
The Window is “closed” when the price returns to the level of the previous candle, so the gap between the extremums closes. In other words, price breaks through a resistance level, defined by the Window. Therefore, when Window is closed – the current trend is considered over.
Window on the downward trend signals about further price fall. Any upward corrections will stumble on the Window level. If the price will break the window level and close the Window – the downward tendency is over.
According to the basic provisions of the traditional Japanese technical analysis, during the correction prices comes back to the Window level (tests the level). This way, during upward tendency Windows levels, may be used as levels for entering the market with long positions. If sellers do not rebound from the Window level and close it – trader should consider closing long positions. The strategy should be mirrored for the downtrend tendency.
Also, Japanese states that windows, which occur after prolonged recession periods or during movement to new extremums worthy a high attention from the traders.
Upward and Downward Tasuki Gap
During an up-trending tendency, after the white (rising) candle, which follows the gap, a black candle appears. Black (dawn-trend) candle Open price located inside the body of the previous, white, candle; the Close price of the candle falls lower than the body of the previous one.
If the Close price of the black candle does not “close the window”, then it is the right time to enter the market with the long positions. Otherwise, if this black (dawn) candle closes the gap with its body – then it might be the end of the upward trend. Reverse rules are useful for the Bearish or Downward Tasuki Gap.
In other words, the Window in Tasuki Gap plays the role of the support level for the trend. A trader should enter the market when the price comes back near to the support level; Else, if price breaks this level – trader should close existing positions and consider changing the trade direction.
High-price and Low-price Gaping Games
Sometimes, after fast grows or after sharp falling, market switches to stagnating state, accompanied by small-body candles and sideways movement. Such state shows that traders remain in uncertainty. Nevertheless, if in one of the next candles opens with a gap – that gives the substantial trading signal. Such model has a name – Low-price Gaping Game. Bearish analog of this model has a form of a Window after stagnating period on the downward trend. Such situation shows that skeptic about further trend traders, despite everything, takes the decision to continue the race.
Gaping Side-by-Side Lines
During an uptrend, Window appears between two white (upward) candles; the third candle appears as well white and has similar size and the Open price to the second candle of the formation. Such formation has a name – Gapping Side-by-Side White Lines. If the market does not close the Window and exceeds these two candles – traders should expect a continuation of the trend.
Model, described above, are a rare formation. A bearish version of the Gaping Side-by-Side Lines is even more unusual. Bearish formation also consists of three candles; the gap appears between the first and the second candle; the third candle has similar to the second candle size and Open price.
The primary principal of usage of Windows-related models is to determine strong Support/Resistance level with the help of the window – then act according to price behavior regarding this level.