CDL_CDL_HIGHWAVE (High Wave Candle)

Overview

The High Wave Candle is a reversal/indecision candlestick pattern used in technical analysis to identify potential trading opportunities. This pattern provides traders with insights into market psychology and potential price movements when properly confirmed.

Parameters

Parameter	Type	Default	Description
open	Array	Required	Array of opening prices
high	Array	Required	Array of high prices
low	Array	Required	Array of low prices
close	Array	Required	Array of closing prices

Parameter Details

Note: Array elements should be ordered from oldest to newest (chronological order)

OHLC Arrays - All four price arrays must have the same length - Requires sufficient historical data for pattern recognition - More data provides better trend context for signal validation

Usage

Basic Usage

require 'sqa/tai'

open =  [50.0, 49.5, 48.0, 47.5, 48.5]
high =  [50.5, 50.0, 48.5, 48.0, 49.5]
low =   [49.5, 48.5, 47.5, 47.0, 48.0]
close = [49.5, 48.5, 48.0, 47.5, 49.0]

pattern = SQA::TAI.cdl_highwave(open, high, low, close)

puts "High Wave Candle signal: #{pattern.last}"
# Output: 100 or -100 (pattern detected) or 0 (no pattern)

With Confirmation

require 'sqa/tai'

# Get historical data
open, high, low, close = get_ohlc_data('AAPL')

# Calculate pattern
pattern = SQA::TAI.cdl_highwave(open, high, low, close)

# Add confirmation with volume and RSI
volume = get_volume_data('AAPL')
rsi = SQA::TAI.rsi(close, period: 14)

if pattern.last != 0
  puts "High Wave Candle detected!"
  puts "Signal strength: #{pattern.last}"
  puts "RSI: #{rsi.last.round(2)}"
  puts "Consider entry with proper risk management"
end

Understanding the Pattern

What It Measures

The High Wave Candle pattern measures: - Market Psychology: Extreme indecision between bulls and bears, potential volatility - Trend Dynamics: Potential shift or continuation in price direction - Momentum: Balance of power between buyers and sellers

Pattern Characteristics

• Type: Reversal/indecision
• Context: Best used in any trend
• Signal: 100 or -100
• Reliability: Moderate - requires strong confirmation
• Timeframes: Most reliable on daily and 4-hour charts

Body Characteristics: Very small body (open and close nearly equal) Shadow Characteristics: Very long upper and lower shadows

Interpretation

Signal Values

• +100: Bullish pattern detected - potential upward reversal or continuation
• -100: Bearish pattern detected - potential downward reversal or continuation
• 0: No pattern detected - continue monitoring

Pattern Recognition

The High Wave Candle is identified by: - Specific candle body and shadow relationships - Position within the prevailing trend - Can appear in various market conditions

Trading Signals

Entry Strategy

Pattern Confirmation: 1. Wait for pattern completion 2. Confirm with next candle moving in signal direction 3. Verify with volume increase 4. Check RSI for overbought/oversold conditions

Entry Points: - Aggressive: Enter on pattern completion - Conservative: Wait for next candle confirmation - Safe: Combine with support/resistance levels

Risk Management

Stop Loss Placement: - Place beyond the pattern's extreme point - Use ATR to set appropriate distance - Never risk more than 1-2% of capital per trade

Take Profit Targets: - Target 1: Recent swing high/low - Target 2: Key support/resistance levels - Target 3: Fibonacci extensions

Best Practices

Optimal Use Cases

High Wave Candle works best when: - Pattern appears in appropriate trend context (any trend) - Volume confirms the price action - Other technical indicators align (RSI, MACD, Moving Averages) - Pattern forms at key support or resistance levels

Combining with Other Indicators

Recommended Combinations: - RSI: Confirm momentum and overbought/oversold conditions - MACD: Verify trend direction and strength - Volume: Validate buying/selling pressure - Moving Averages: Identify overall trend direction - Support/Resistance: Enhance signal reliability at key levels

Common Pitfalls

Avoid These Mistakes: 1. Trading pattern without confirmation 2. Ignoring overall market trend 3. Not using proper stop losses 4. Over-leveraging based on single pattern 5. Forgetting to check volume confirmation

Parameter Optimization

• Use daily timeframe for highest reliability
• Combine with 4-hour for entry timing
• Avoid very short timeframes (increases false signals)
• Test on historical data before live trading

Practical Example

Complete trading scenario:

require 'sqa/tai'

# Historical price data
historical_data = get_market_data('AAPL', days: 50)

# Calculate pattern and indicators
pattern = SQA::TAI.cdl_highwave(
  historical_data[:open],
  historical_data[:high],
  historical_data[:low],
  historical_data[:close]
)

rsi = SQA::TAI.rsi(historical_data[:close], period: 14)
macd, signal, _ = SQA::TAI.macd(historical_data[:close])

# Trading logic
if pattern.last == 100  # Bullish signal
  current_price = historical_data[:close].last
  pattern_low = historical_data[:low].last(3).min

  if rsi.last < 70 && macd.last > signal.last
    puts "STRONG BUY SIGNAL"
    puts "Entry: $#{current_price}"
    puts "Stop: $#{pattern_low * 0.98}"
    puts "Target: $#{current_price * 1.05}"
    puts "Risk/Reward: 1:2.5"
  end
elsif pattern.last == -100  # Bearish signal
  current_price = historical_data[:close].last
  pattern_high = historical_data[:high].last(3).max

  if rsi.last > 30 && macd.last < signal.last
    puts "STRONG SELL SIGNAL"
    puts "Entry: $#{current_price}"
    puts "Stop: $#{pattern_high * 1.02}"
    puts "Target: $#{current_price * 0.95}"
    puts "Risk/Reward: 1:2.5"
  end
end

Related Indicators

Similar Patterns

• Doji - Indecision candle patterns
• Hammer - Bullish reversal pattern
• Engulfing - Strong reversal pattern

Complementary Indicators

• RSI - Momentum confirmation
• MACD - Trend direction and strength
• Volume OBV - Volume analysis
• Bollinger Bands - Volatility context

Pattern Family

The High Wave Candle belongs to the candlestick pattern family used for: - Identifying potential reversals - Confirming trend continuations - Analyzing market psychology - Timing entry and exit points

Advanced Topics

Multi-Timeframe Analysis

Use High Wave Candle across multiple timeframes: - Weekly: Identify major trend direction - Daily: Spot pattern formation - 4-Hour: Fine-tune entry timing - 1-Hour: Manage position and stops

Market Regime Adaptation

Pattern reliability varies by market: - Trending Markets: Moderate reliability - Ranging Markets: Higher reliability - High Volatility: Use wider stops and smaller position sizes - Low Volatility: Tighten stops but expect smaller moves

Statistical Considerations

• Success rate varies by market conditions (typically 50-65%)
• Confirmation significantly improves reliability
• Volume validation adds 10-15% to success rate
• Pattern at support/resistance adds 15-20% reliability

References

• Nison, Steve. "Japanese Candlestick Charting Techniques" (1991)
• Bulkowski, Thomas. "Encyclopedia of Candlestick Charts" (2008)
• Morris, Gregory L. "Candlestick Charting Explained" (2006)
• StockCharts Candlestick Patterns

See Also

• Candlestick Pattern Overview
• Pattern Recognition Guide
• API Reference