High Wave

A High Wave is a single candle with a small body (the thick part between the open and the close) and very long shadows (the thin lines above and below, also called wicks) on both sides. Price traveled a long way up and a long way down during the session, then closed near where it opened.

Two things set it apart. The shadows are long compared with the stock's normal day, not just compared with the body: the whole candle covers far more ground than the candles around it. And the body is small but real. If the open and close are the same price, or the gap between them is tiny next to the day's range, the candle is a Long-Legged Doji instead.

One session, two big pushes, and a close that gives both of them back.

Neither, on its own. Buyers and sellers both showed real force, and the close settled nothing. After a decline it warns that a turn up may be coming; after a rally, a turn down. That is a question, not an answer, and the candle alone does not settle it.

Because the candle has no direction of its own, the High Wave is best treated as a range to be broken. Its high and its low are the two prices that matter. A later close above the high says buyers won the argument; a close below the low says sellers did. Until one of those happens, there is nothing to trade.

That gives you two plans to write down before either happens: what you do on a close above the high, and what you do on a close below the low. Setting a price alert at each level is the simplest way to hold yourself to them. Price can stay inside the range for several days, so the break may not come on the very next candle.

The cost of a wide range. A long (a trade that profits if price rises) taken on a close above the high is plainly wrong if price falls back below the wave's low, so the stop goes there, on the far side of the candle. A close back inside the range is an earlier warning that the break is failing; some traders exit or cut size there rather than wait for the full stop. The risk on each share is the whole range, plus the distance from the high to your entry, plus the small buffer below the low: several normal days of movement. Take fewer shares so the dollar risk stays the same; the Long-Legged Doji guide covers that sizing in more detail.

Does the trade pay for its stop? Fewer shares keep the loss the same size, but they also shrink the win. A stop several normal days away only makes sense if price has room to travel clearly further than that in your favor. Before taking the break, find the nearest level that could stop the move, such as the last swing high in a decline or a falling moving average. How much room is enough is your call, but room that only matches the stop is not enough. At one-for-one you need to win half your trades just to break even, and more than half once costs and slippage are counted. A freshly broken range promises no such win rate. If the nearest level is not clearly further away than your stop, the break may have happened and still not be worth trading.

Three indecision candles share the same idea, shadows on both sides and little net movement. What separates them is the body and how wide the range is.

A High Wave is a Spinning Top with its shadows stretched, and a Long-Legged Doji with a body. All three say the move has paused, and a later close beyond the candle says which way it resolved. A Spinning Top's body color can hint at a lean; on a High Wave the body is so small against the range that the hint is fainter still. The width is what changes the trade, because the stop sits much further away.

The candle shows a fight with no winner. Context says whether that fight happened somewhere it matters.

Where it formed. A wave at a level many traders already watch, such as a Fibonacci retracement or a key moving average, is a fight at a price that means something. One in open space may be just a volatile day.

Volume. Heavy volume means many shares changed hands across that wide range, so both sides took part in size. A wide range on thin volume can be a few large orders in a quiet market. Read the Candlesticks + Volume guide →

News. Wide two-sided days often come on earnings or other news. There the range is the market reacting to the headline, and it says less about a turn in the trend.

Several in a row. Two or three High Waves together mean the market has lost its sense of direction for days, not hours. Treat the group as one range: its highest high and lowest low are the triggers, and the stop is wider again.

The weekly chart. A break that goes the same way as the weekly trend has the bigger picture behind it; one against it has more to prove. Read the Candlesticks + Timeframes guide →

A High Wave is the market shrugging after a big argument. Buyers and sellers both moved price a long way, and the close settled nothing.

Don't guess which side wins. Mark the high and the low, wait for a close beyond one of them, and put the stop beyond the other. Then ask whether the move has room to pay for a stop that wide.