In this article, we will discuss the performance of the EUR/USD after the emergence of a high-wave candle in a consolidation phase.
Data Sheet
- Reference: CS0026
- Security: EUR/USD
- Timeframe: Hourly Chart (November 15, 2023)
- Patterns:
- High-Wave
- Tower Top
- Hanging Man
- Shooting Star
1. Signal Formation
After an extended sideways market (not fully shown in the chart below), the EUR/USD pair broke out with a strong, steep upward move. Following a minor retracement, the market displayed a prominent high-wave candle.
This situation effectively sets the stage for discussing two possible future scenarios that may arise from observing the remarkable high-wave session:
- The high-wave signals a bearish reversal
- The high-wave suggests a consolidation phase, that is, a period of non-trending market.
![EUR/USD: High-Wave in a Consolidation Phase on November 15, 2023 (Hourly Chart)](https://www.dollarcontext.com/content/images/2023/11/1-CS0026-Signal-Formation.png)
2. Early Market Transition
Given that the high-wave appeared not right after the upward move, but instead after a period of 17 candles following the upswing, it is more reasonable to anticipate a range-bound market rather than a bearish reversal. This is what unfolded as the EUR/USD displayed a horizontal range for almost four days.
It's worth noting that, during the lateral movement, the market displayed a tower top, which in turn included a hanging man and a shooting star. All of them signaled a minor decline to the lower bound of the trading range.
![EUR/USD: Sideways Market in Mid-November 2023 (Hourly Chart)](https://www.dollarcontext.com/content/images/2023/11/2-CS0026-Early-Market-Transition.png)
3. Resolution
The tower top marked the beginning of the last downward move within the trading range. The market then broke out to the upside to resume the previous uptrend.
![EUR/USD: Breakout to the Upside in November 2023 (Hourly Chart)](https://www.dollarcontext.com/content/images/2023/11/3-CS0026-Resolution.png)
4. Conclusion and Subjective Review
Remember, a reversal pattern in the course of a range-bound market, or a short trend, should be interpreted with caution. Such signals may evolve into a consolidating phase over an extended period.