Meaning and How to Use Candle Wicks
Charting with candlesticks is a method for displaying price movements so that traders can see the struggles between buyers and sellers. From such a situation, traders can take advantage because this struggle often presents certain signals. Trading with candlesticks has been going on for about half a century, and its popularity has increasingly spread to various parts of the world. There are so many candles and candlestick patterns that appear on each chart, and each candle carries certain information from the market.
Long wick candlestick is a type of candlestick that has a long wick attached to the body of the candlestick. The body of a candlestick can be positive or negative, making the long wick suitable for all types of candlesticks. The length of the wick of the candlestick determines the high and low of the price movement in the specified time period. Understanding and trading the wicks of candlesticks can provide traders with major trading opportunities.
How to Use Candle Wicks
The first step when utilizing the long axis is to identify the trend. If the trend is down, looking at one candle or several candles with a long wick at the top indicates a stronger potential for the price to move down in the direction of the market. Continuing the example of a downward trend, if a currency pair retraces (moves against the trend) and stops at a resistance level or a Fibonacci level, traders will look for a long wick at the top of the candle that forms along that resistance line for two reasons:
- The long wick identifies the potential for the currency pair to move to the downside back in the direction of the trend.
- The elongated top of the wick provides a very wise level for traders to place stop levels. The reason for placing the stop level is that buyers pushed the price above that wick but could not push it beyond that point. Therefore, placing a stop just above that axis is a level that has a lower probability of being touched.
There is often confusion among traders as to which chart time frame to apply this strategy to. For day traders, traders might look at 5 or 10 minute timeframe charts. Swing traders on the other hand can look at other intraday charts such as 2-hour or 4-hour charts.