The High Wave Candlestick pattern was first identified by a Japanese trader named Steve Nison in his book, “Japanese Candlestick Charting Techniques,” which was published in 1991.
The High Wave Candlestick pattern is considered a reversal pattern, indicating a potential change in the direction of the trend.
The High Wave Candlestick pattern is used to predict price movements by analyzing the relationship between the upper shadow and real body of the candle.
What is the Highwave Candlestick Pattern?
The High Wave Candlestick pattern is a variation of the Spinning Top pattern, where one or two long shadows are present. The open and close prices of the candle are not the same, with slight differences between them. The color of the body does not play a role in this pattern. It is similar to the Long-legged Doji and, like most candles with long shadows, it suggests that market fluctuations are rapid and may indicate a threat to the current trend.
The significance of the pattern depends on the market context. According to Nison, the High Wave Candlestick pattern is characterized by one or two long shadows, and the importance of the pattern will be stronger when it follows a strong trend and is accompanied by increased volume. In general, any accumulation of candles displaying high volatility after a strong trend may indicate a potential reversal.
In order to trade using the High Wave Candlestick pattern, traders must:
- Identify the pattern on the chart.
- Understand the context of the market.
- Use additional technical analysis to confirm the signal.
High Wave Candlestick Pattern Strategy
Bullish High Wave Candlestick Pattern
- To initiate a long trade, enter the market when the price surpasses the high of the candlestick.
- Use the lowest closing point of the candlestick as a stop-loss level.
Bearish High Wave Candlestick pattern
- To initiate a short trade, enter the market when the price falls below the low point of the candlestick.
- Use the highest closing point of the candlestick as a stop-loss level.
High Wave Candlestick Pattern Pros & Cons
Pros
- Provides a clear indication of potential trend reversal.
- Can be applied to various time frames and markets.
Cons
- Can be subject to interpretation and may not always provide clear signals.
- Requires additional technical analysis for confirmation.
Conclusion
Like other candlestick patterns, the context in which a High Wave Candlestick pattern occurs is crucial. If it appears during a period of market consolidation, it suggests indecision, but also low volatility. However, these signals can be more significant when they occur during extended or strong trends. It is recommended to use candlestick signals in conjunction with other technical indicators to identify the best trades. Additionally, combining candlestick signals with other successful trading systems that complement candlesticks can be beneficial. The High Wave Candlestick pattern is a simple indication of indecision and may not provide a strong signal when used alone, but it can support other, stronger candlestick signals and othet technical indicators.
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