Three Windows pattern in the Elder system

Elder’s Philosophy on Price Gaps

In Alexander Elder’s trading system, the market is viewed not merely as a chart of quotes, but as a reflection of mass psychology. Windows, or price gaps, represent zones where consensus between bulls and bears is

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reached so rapidly that trades at intermediate prices simply do not occur. In the context of Elder’s strategy, the Three Windows pattern is an indicator of a trend’s maturity and its internal strength. It is crucial for a professional analyst to understand that each window is not just a void on the chart, but a powerful signal of a supply and demand imbalance. Elder emphasizes that gaps emerge during moments of peak emotional tension, when the crowd is either panicking to exit the market or trying to FOMO into the last wagon during a state of euphoria. Understanding the structure of this pattern allows a trader to identify the current stage of a move and decide whether to open new positions or prepare to take profit.

Classification of Three Windows in a Trend

The pattern system entails the sequential appearance of three types of gaps, each carrying a unique functional meaning. The first window is the Breakaway Gap. It occurs when the price leaves a consolidation zone or breaks through a key support/resistance level. According to Elder, this is the birth of a new trend, accompanied by a sharp surge in trading volume. The second window is the Runaway or Measuring Gap. It appears in the middle of a move, confirming that the dominant group (bulls or bears) is in full control. This gap often serves as a reference point for forecasting further price action: it is typically located roughly in the middle of the entire trend move. The third window is the Exhaustion Gap. This is the final chord, occurring at the peak of euphoria or the bottom of panic. The price makes one last push, but the market lacks the strength to sustain the momentum. The appearance of the third window in Elder’s system is a critical signal that the trend is nearing completion and that a reversal or deep correction is imminent.

Mechanics of Interaction with the Three Screens

Alexander Elder recommends analyzing the Three Windows pattern through the lens of his famous Three Screens system. The first screen (weekly chart) determines the direction of the market tide. If the weekly MACD histogram is rising, we look for windows only in the direction of long positions. A second window, appearing on the daily chart in the direction of the weekly trend, becomes a powerful confirming signal. The second screen (daily chart) is used to identify the windows themselves and classify them. Here, the trader employs oscillators, such as the Force Index or Stochastic, to evaluate the quality of the gap. If a Breakaway Gap is confirmed by a sharp spike in the Force Index, it strengthens the signal. The third screen (intraday chart) serves for precision entry. Upon detecting a measuring window on the second screen, the trader moves to a lower timeframe to find an optimal entry point immediately after the gap forms, without waiting for a potential fill, which may never occur in strong trends.

Trading Strategy Based on Windows

Practical implementation of the pattern requires strict discipline and an understanding of risk management rules. Upon the appearance of the first (breakaway) window, Elder advises entering the market immediately, as this is the beginning of an impulse. In this case, the stop-loss is placed beyond the gap boundary that is closer to the previous range. If the price returns and fills the window, the breakout was a fakeout, and the position should be liquidated immediately. The second (measuring) window allows for scaling into the position via pyramiding.