Unlike all the other candles I talked about before, this formation is not bullish or bearish. This is a neutral candle, and is a single candle formation. The first rule for this pattern is that the real body must be small. Secondly, it must have a very long upper shadow, and a very long lower shadow. Finally, high wave candles generally come after a large rally, or steep decline, so that there is a lot of emotion in the air.
Below is a chart of GDX, the gold miners ETF.
Psychologically, this candle indicates that the market is confused. It shows that the bulls and the bears have waged a fierce battle, and the result is a draw, which means that sideways prices can be expected.
Notice in the above example, prices did rise after the highwave candle, but fell back down soon after. The highwave candle is not a reversal signal. However, notice a few days later, a hammer appeared, which is a reversal indicator.
