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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.
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.
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.
On a daily chart, common windows will be closed most of the time within a couple of weeks.
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
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