Bullish High Wave

The bullish high wave is a single-bar Japanese candlestick pattern representing indecision. 

But what if I told you that you could ride this pattern’s wave to profitability using history as your guide?

Would you be ready to hang ten?

If so, keep reading if you want to understand what a 21-year backtest tells us about the best bullish high wave trading strategy.

What Are Bullish High Wave Candlestick Patterns?

Bullish High Wave Candlestick Pattern Illustration © Analyzing Alpha
Bullish High Wave Candlestick Pattern Illustration

The bullish high wave is a frequently occurring one-bar candlestick pattern that most traders consider an indecision candle.

The high wave gets its name as it looks like a giant wave on your candlestick charts.

And while most modern-day rice traders think this pattern has little profit potential, history tells us otherwise.

But before we learn how to ride the surf up to new portfolio highs, let’s learn how to identify these bullish high wave patterns.

How to Identify the Bullish High Wave Candlestick Pattern

Bullish High Wave Candlestick Pattern on the Microsoft (MSFT) August 4th, 2021 daily chart
Bullish High Wave Candlestick Pattern on the Microsoft (MSFT) August 4th, 2021 daily chart

The following are the requirements for a valid bullish high wave:

  • A small bullish body with long upper and lower wicks (at least 3x the real body size)

The trend doesn’t matter. The bullish high wave pattern appeared on Microsoft’s August 4th, 2021, daily chart.

We see a green candle with shadows over 3x the size of its small green real body.

Now that we know how to identify this single candlestick on our charts, let’s learn the best bullish high wave trading strategy.

How to Trade the Bullish High Wave Candlestick Pattern

The bullish high wave candlestick pattern is traded best using a bullish mean reversion strategy in the crypto and stock markets and a bearish mean reversion in the forex markets, according to our 21-year backtest.

Let’s jump right to the best crypto and stock market bullish high wave trading strategy according to our 21-year backtest, as traditional trading lore doesn’t recommend any setup for this indecision candle.

Bearish High Wave Bullish Mean Reversion Trade Setup

Bullish High Wave Bullish Mean Reversion Trade Setup on the Bitcoin (BTCUSD) August 31st, 2021 daily chart
Bullish High Wave Bullish Mean Reversion Trade Setup on the Bitcoin (BTCUSD) August 31st, 2021 daily chart

Identifying the bullish high wave is relatively straightforward. We only need to identify a single green bar with wicks at least 3x the size of its slight green body. We don’t need to worry about the trend.

We see the bullish high wave pattern on the Bitcoin (BTCUSD) August 31st, 2021, daily chart.

Data-driven stock and crypto traders enter long when the price falls and then moves back above the candle’s low, setting a stop loss of one ATR.

Let’s make the water warm by using an example.

The low of the candle is $46,699. Prices cross below the low on the first day. Now a trader will wait until prices move back up through that low, which occurred on the same day, triggering an entry.

Traders using this bullish mean reversion strategy stacked their satoshis by using history as a guide.

And while this is the best way to trade high wave patterns in the stock and crypto markets, according to the data, forex traders should go in the opposite direction.

Bullish High Wave Bearish Mean Reversion Trade Setup

Bullish High Wave Bearish Mean Reversion Trade Setup on the EURO/USD February 11th, 2020 daily chart
Bullish High Wave Bearish Mean Reversion Trade Setup on the EURO/USD February 11th, 2020 daily chart

With shadows larger than the green real body, we’re ready to ride the wave.

One might argue that the trend is your friend; in this case, I agree.

An intelligent forex trader will enter short after the price moves above and below the candlestick’s high, setting a stop loss of one ATR.

This occurs at 1.09248 in the Euro chart above. Price moves above 1.09248 and back below it on the very same day. Data-driven traders profited nicely with an exit either the same day or a few days later, depending upon the risk-reward level selected.

Speaking of nice profits, how have these bullish high wave trading strategies performed across the crypto, forex, and stock markets historically?

Does the Bullish High Wave Candlestick Pattern Work? (Backtest Results)

I backtested the bullish high wave candlestick patterns on the daily timeframe in the crypto, forex, and stock markets using the following rules:

  • A close above the 50-day SMA constitutes an uptrend.
  • I tested risk-reward ranges from 1 to 5. 
  • The optimal risk-reward ratio is selected using profit per bar.
  • Entry and exits are discussed in the how-to trade section above.
  • Confirmation must occur within three days of the pattern signal.

Similar Candlestick Patterns

Multiple candlestick patterns are often confused with the bullish high wave.

Bearish High Wave vs. Bullish High Wave

Bearish High Wave Candlestick Pattern Illustration © Analyzing Alpha
Bearish High Wave Candlestick Pattern Illustration

The bearish high wave candlestick pattern is the opposite of its bullish brethren. Neither pattern requires a trend, and both require shadows three times the small real body size.

The candle color is the only difference between the bearish and bullish high waves.

Both are considered indecision candlesticks by traditional technical analysis, yet the backtests show that the high wave candles tell us that volatility is likely incoming.

Bullish Spinning Top vs. Bullish High Wave

Bullish Spinning Top Candlestick Pattern Illustration © Analyzing Alpha
Bullish Spinning Top Candlestick Pattern Illustration

The bullish spinning top candlestick pattern is often confused with the bullish high wave. Both candlesticks are one-bar patterns that don’t require a trend.

The secret to identifying the bullish spinning top is understanding that the real body must be near the middle of the range, and the wicks should be no longer than three times the real body size.

As we’ve just seen, the bullish high wave doesn’t have this body location requirement and requires longer shadows.

The Bottom Line

The bullish high wave is a one-bar pattern that most market participants believe represents indecision. According to our 21-year backtests, these candlesticks represent future volatility that can lead to profits when traded correctly.

According to history, the best trading strategy for the bullish high wave is to capitalize on the likely volatility and use a bullish mean reversion strategy in the crypto and stock markets and a bearish mean reversion strategy in the forex markets.

Disappointed in traditional candlestick methods? Read the backtest results to learn the best bullish candlestick patterns.

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