Technical Analysis Windows (Gaps)

Windows are part of support and resistance and can be used for initial stops because of the support as well as for price targets because of their resistance. Additionally according to the type of window we can expect to be at a trend reversal, a trend continuation or near a trend conclusion.

An up window in a bar chart appears when the low price of the current bar is higher than the high price of the previous bar. A down window in a bar chart appears when the high price of the current bar is lower than the low price of the previous bar.

We consider four window types: a common window, a breakaway window, a continuation window, and an exhaustion window. A window is closed and support or resistance has no further meaning when the price turns around and completely covers the window.

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As long as a window is not closed, the whole area of a window represents support or resistance for future price moves. A breakaway window, a continuation window, and an exhaustion window represent a much more important support or resistance compared to a common window.

The support or resistance of a window is only broken when it is penetrated with the closing price.

Common Windows

A common window is so-called  because it is common in the normal price evolution.
Most of the common windows can be found during periods of price consolidation when the price is moving sideways.

 

Figure 4.71: Common windows.

In figure 4.71, you can see that a common window does not give any indication about an expected price move.

Generally, it only can be used as a support and resistance level for the short term.

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On a daily chart, common windows will be closed most of the time within a couple of weeks.

 

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