Window, The Definitive Calculation

In case there remain questions about the "exact" definition of a "window," take a look at the following pseudo-EasyLanguage* algorithm to calculate Window:

// Calculate 50 period simple moving average 
// based on candle close
50MA = Average(Close, 50);

// if the entirety of the candle is 
// above the moving average
if ( (High > 50MA) AND (Low > 50MA) ) then
  Window = Absolute( Low - 50MA );
else
   // if the entirety of the candle is 
   // below the moving average
   if (  ( High < 50MA ) AND (Low < 50MA) ) then

     Window = Absolute( High - 50MA );

   else Window = 0;  // Candle straddles MA, no window

// Display the window size

Plot1( Window, "Window" );

Over time, you will develop a feeling for the proper window size. When you see these windows, you can then draw the swings on your chart. These swings serve as the basis to measure Fibonacci retracements and extensions.

The following list gives you an idea of the window size that I use, by product, by trading time frame:

• YM 233 tick: 3.9 point window
• YM 144 or 89 tick: 2.1 point window
• ES 987 tick: 1 point (4 ticks) window
• CL 233 tick: 0.06 (6 cents) window

This list is merely a starting point. To be a successful trader, you must find what works for you.

* EasyLanguage is the Tradestation programming language - I am not affiliated with Tradestation, but I do use their platform 

Price Swings

Now that you know the Fibonacci ratios that I use, we need to discuss the methodology of finding price swings on a chart. A price swing nothing more than a set of low - high - low or high - low - high prices. The following is a chart of the e-mini Dow futures. You can see that there is a lot of "vibration" in price.

To simplify the process of finding the "best" swings, I add a moving average to the chart. Specifically, a 50 period simple moving average (SMA). On my charts, this moving average is always Magenta (pinkish), as follows: 

Next, I look for areas where price has created a meaningful "window" (white space) between the candle and the 50MA. Every trader will determine the appropriate window size for the product(s) and timeframe(s) that they trade. The following picture, highlights in yellow, the windows that correspond with the price swings (extremes) that might prove significant in determining the direction of price:

While it might look messy, measuring each of these extremes with a Fibonacci retracement tool creates a chart that looks as follows: