What Is a High Wave Candlestick & How to Trade These Candlesticks?
High wave candlesticks are indecision candlesticks that look like long legged doji’s. They have long lower shadows and long upper wicks. They also typically have a larger real body. They can be found near support and resistance levels and also during consolidation areas. High wave candles could be bullish or bearish. Watch our video on how to identify and trade high wave candlesticks.
What Is a High Wave Candlestick Pattern & How to Identify These Candlesticks?
A high wave candlestick consists of a small to medium size body with long upper wicks and shadows. They are an indecision candle. Many of times they are signaling potential reversals. They can be found in both up trends, down trends and are bullish or bearish coloring on stock charts.
High wave candlesticks show a stock that’s plagued with indecision. The stock market is a battle between the bulls and the bears. As a result, candlesticks like the high wave candlestick tell a story. Watch our video above on high wave candlesticks. Emotions move markets. In fact, Japanese rice trader Homma realized this factor a long time ago. As a result, he came up with candlestick patterns to chart this out. Emotions affected rice trading a very long time ago.
Nothing’s changed today. Traders dabble in emotion. We trade greed and fear. Those two emotions affect price action.
Thanks to Homma we have a way to chart it out. Hence why being able to read bullish candlesticks as well as bearish candlesticks and the patterns they form are important when stock trading.
Basics of High Wave Candlesticks
High wave candlesticks look similar to doji candlesticks. It’s not important to get caught up in the minutia of reading the exact form of candlesticks because of the similarities in indecision candles. Like the doji, a high wave candle tells a story of indecision.
This candle has a small real body with long shadows coming from the top and bottom of the real body. This is telling you there’s a lot of volatility with the uncertainty.
High wave candlesticks, as an illustration, tells the story of the market having a difficult time coming to a consensus of a stocks value. To put it another way, the bulls and the bears are confused about where the stock is headed.If a high wave candle is paired with high stock volume, traders are letting you know they’re confused about where the stock is headed. For this reason, knowing how to implement tools such as technical analysis basics is important.
Using Technical Analysis With High Wave Candlesticks
Technical analysis uses past market data like price and volume to predict which direction a stock will head. Now pair that with an indecision candle. It might help you as a trader gauge a trend.
We know not everything is 100%. Technical analysis isn’t a crystal ball telling us how to trade. Anything can happen. As we all know, news and emotion can completely change the direction of a stock. Bookmark our day trade watch list page that we update daily.
But technical analysis clears up a blurry picture. It’s like putting glasses on after you wake up. Everything is blurry when you first wake up but once the glasses come on, you can see much better.
Candlesticks are incredibly important. They’re the first line of defense in technical analysis. Not only are they used to tell a story, they form key levels of support and resistance.
In fact, traders are extremely aware of support and resistance. Moving average lines such as the simple moving average or VWAP can be used as support and resistance.
Moving averages also signal bullish or bearish trends. It’s important to notice what technical indicators are doing because stocks as well as traders respond to that. We teach how to trade high wave candlesticks on our live daily streams. Check out our trading service to learn more.
Traders are creatures of habit and they look for patterns to trade. If you watch our watch list videos, not only to you see us looking at support and resistance but also at patterns. Patterns are an important part of trading.
A pattern tells you when a reversal is coming. You’ll also be aware of a continuation. Stocks are always going up and down. Trends begin and reverse.
Always be aware that patterns break down. If you see a head and shoulders pattern and are expecting the breakdown, wait for confirmation. For example, you sell short or do a put option, based on a right shoulder formation, but the pattern breaks down and the stock continues to move up.
You’ll be in a losing trade. That’s why it’s always important to wait for a confirmation. Especially if you’re using swing trading strategies. As a swing trader you’re holding a stock for more than a day. You don’t want that trade going against you.Take our free candlestick reversal patterns course.
How to Trade High Wave Candlesticks
- Knowing how to trade high wave candlesticks is quite simple:
- Traders take a long position when price breaks above the high of the candlestick.
- They use a candlestick close below the low as a stop level.
- They take a short at the break of the low and use a candlestick close above high as a stop.
High wave candlesticks happen because traders are confused about the direction of a stock. If you see that form on a chart, it’s probably smart to wait a day for two before placing a trade.
Wait for the conformation of where the stock will head. As you noticed from the AMZN chart above, it had been moving up for awhile and then created a high wave candlestick right at the 9 ema creating indecision. When this happens, it’s important to let the following candlesticks form and see what direction that the stock decides to head in. Trading high wave candles can be tricky at times.
That’s why it’s so important to know what candlesticks are telling you. It’s important to stay patient, and let the patterns come to you.