High Wave Candlestick Pattern
A candlestick pattern known as a high wave has wicks and shadows that are bigger than the typical candle size. As compared to the shadow, the candle’s body is small. It resembles a top or a Doji with long legs. This candlestick pattern illustrates the direction in which market participants are moving. Large traders and institutions also employ it as a stop-loss pattern.
High-wave candlestick patterns are unreliable indicators of bullish or bearish market situations since they are ambivalent patterns. They often happen at levels of support and resistance. Here, bulls and bears battle to push the price in a specific direction.
How Does it Work?
When a candlestick is high, it means that the market is having trouble agreeing on a security’s worth. They highlight a market where ambiguity and indecision are prevalent. Both buyers and sellers are uncertain of the market’s future path. Supply and demand are evenly balanced factors. A high-wave candle with significant volume suggests market uncertainty over the price’s direction.
The S&P 500 history chart is shown below. Three candles that, as of the beginning of March, might be read as a top and one that was almost a Doji were present. Doji had incredibly high waves and was rather small. This candle set shows a bull-bear conflict where neither side wins.
Formation
A high-wave candle consists of:
- white or black body
- tiny body
- at least one shadow is necessary
- shows up as a lengthy line
- at least one shadow has a length that is at least 3 times greater than the body
Identification of High Wave Pattern
High wave patterns depict the circumstances under which the market finds it difficult to determine a security’s worth. They reveal a market ruled by ambiguity and indecision. Both the buyer and the seller are unsure about the market’s direction. The same forces govern supply and demand. It indicates broad market perplexity regarding price direction if it emerges in significant numbers.
A Few Other Points are:
- Because it is a high-wave candle, its total size must be greater than the sum of the sizes of the previous 20 candles. This implies that significant market changes will take place during this period.
- the size of the candle body should be smaller. A high-wave candle often has a body and wick ratio of less than 20%. The market activity on the chart is explained by the big shadow above or below the candlestick pattern.
- As with the top spinning candlestick pattern, the color of the candlestick pattern is irrelevant; it might be red or green.
High Wave Pattern Working Conditions
On the price chart, any high wave formation will fail. A very small number of factors enable us to trade just solid candlestick patterns. In market circumstances, the high-wave candlestick pattern has a poor success rate. So, stay away from this type of company in the area. When a high wave pattern develops in a supply/demand or support/resistance zone, the likelihood of success is highest. To spot overbought and oversold situations, use the Relative Strength Index indicator. When it is overbought or oversold, start trading.
What do Traders Learn from the High-Wave Candlestick Pattern?
With a bit of size change, this design conveys the same message as the spinning candle at the top. A high wave candlestick pattern indicates that market participants are setting prices for the future. This candlestick pattern is both reversal and continuation. The candlestick’s breakout verifies the price’s direction. The price will travel to the bottom or top of the candle after creating a high wave candle, and these price values will serve as support or resistance levels. When a breakout of the candle, high or low, happens through the price, the price trend will be verified.
Example:
This candlestick pattern’s peak is where an uptrend will start to fail.
A downtrend is indicated by a break of this candlestick pattern’s low.
How Can High-Wave Candlestick Patterns be Traded?
Here, I’ll provide a straightforward escape plan. It can also be utilized for analytical reasons, though.
Buy/Sell Stop Order in Progress
Set the stop loss below the bottom of the candle and place a pending purchase stop order above the high of this candlestick formation.
Place a pending sell stop order below the wave high candle’s low after placing a buy stop, with a stop loss order above the high.
The other open orders will be canceled after one of the previous two open orders has been completed. Remove the sale stop order, for instance, if a purchase stop order is executed.
The Ratio of Risk to Reward and Profit
For this trade setting, a risk-reward ratio of 1:1.6 is ideal. With the help of additional technical tools or the breakeven method, you may also raise the profit level. But if you are still attempting to break even after 1.6 RR, it helps.
Conclusion
A candlestick pattern known as a high wave has wicks and shadows that are bigger than the typical candle size. As compared to the shadow, the candle’s body is small. The article discusses how the high wave pattern works, how to identify the high wave pattern, and what it is working conditions are for it. The article also explains what traders learn from the high-wave candlestick pattern and how it can be traded.
