A wick is a line in a candlestick chart that indicates where the price of an asset is fluctuating in regards to its opening and closing prices. It’s a vertical line that helps you observe the high and low ranges of price action. Wicks are also called whiskers, shadows or tails.
Typically, when traders read a candlestick, they focus on three key points among others— the opening price, the closing price, and the candlestick wicks. Candlestick wicks show peaks in prices, helping traders to better understand market sentiment and momentum. As the coin’s price moves in relation to the opening and closing price, wicks are formed as a visual record of such movement.
Reading the Charts
The candlestick pattern is formed based on the open, high, low, and close of a market. The “box” portion of the candlestick is called the body, and the lines on both end are the wicks (illustrating related highs and lows). Wicks or shadows form a major aspect of the candlestick because they indicate extreme price levels, ie, the high and low of that particular trading session.
The length of the wick is quite relevant for technical analysis. For instance, when there is a long wick at the bottom of the candle, it implies that the price went all the way down and back up again before the close of the candle. This indicates an increase in buying immediately after a period of selling pressure.
How does one trade a long wick candle?
The first step is to identify a trend.
- In a downtrend, if you detect a candle or many with longer wicks on the top, it means there is a strong likelihood for the price to move down in the market direction.
- A long wick can be traded as a reversal pattern when it is identified at the bottom or top of a short trend.
- It has to be confirmed or validated by resistance or support levels. Support is the level at which there is a chance of a pause in the downtrend. Resistance is the opposite of support level.
- A long wick candle commonly occurs when a trend is ending and it’s immediately followed by a price action reversal, forming a fresh opposite trend.