Long Wick Candlestick Trading - All You Need to Know | Espresso

What is Long Wick Candlestick Trading

Investing in stock markets involves a fair bit of risks. It requires a lot of analysis, planning, and careful execution. Different investors use different methods and techniques to predict the movement of shares and invest accordingly.

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One such method is reading candlestick charts that enable the investors to interpret short-term movements in the prices of shares.

Each candlestick chart has three parts – body, wick, and colour. The wick or shadow in candlestick trading indicates the low and high points during the intraday movement of share prices. During wick trading, the size of the wick candle matters a lot.

In this article, we’ve explained the long wick candlestick trading strategy in detail. Continue reading.

Long Wick Candlestick Trading

When the wick of a candlestick is short, it indicates that the trading was mostly done between the opening and closing prices of the share during that trading session. However, if the wick is long, it signifies that the price movements have crossed the opening and closing prices by good margins.

Usually, a long wick candle signals that the share can move in the opposite direction of the prevailing trend. For example, if the share price goes up, it can go down in the coming period and vice versa.

How to Recognise a Long Wick Candle?

While reading a candlestick chart, look for a candle with a long wick either above or below the body. The wick should be significantly longer than the ones in the surrounding candles.

A long upper wick candle (the one in which the long wick is above the candle body) forms when a share moves too strongly towards its high point but closes at a weak price. This happens when buyers try to dominate a major part of a trading session, but the sellers eventually bring down the price of the share.

On the other hand, a long lower wick candle (the one in which the long wick is below the candle body) is indicative of a trading session where the sellers were dominating for the most part, but eventually, buyers managed to push up the share price.

How to Trade a Long Wick Candle?

You can use the long wick candles to determine short-term trade prospects. A long wick candle usually indicates the reversal of the current movement pattern of the share. Hence, the first thing you have to do when you see a long wick candle is to identify the prevailing trend.

If you notice a long upper wick candle during an uptrend, there is a strong possibility that the price of the share will move down in the market direction. Similarly, if you notice a long lower wick candle during a downtrend, it may indicate a bullish reversal signal, and the share price may move market direction.
Also Read: What is Bear Market & Bull Market?

However, it’s prudent to confirm or validate this movement with the resistance or support level of the share. The resistance level is the point at which the share price may fall after an uptrend, whereas the support level is the point at which the share price may bounce after a downtrend.

What if Both Wicks are Longer?

Usually, the upper and lower wicks of a candle aren’t equal. However, sometimes neither of the wicks may be longer. In such a case, the candlestick is said to be a spinning top. This indicates a tough fight between the bulls and the bears, resulting in a stalemate. Therefore, it’s advisable to avoid trading if you notice such a candlestick.
Also Read: What is Doji Candlestick Pattern?

To Sum it Up

Candlestick trading is a useful strategy adopted by many traders to predict short-term price movements of shares. A Long wick candle generally acts as a reversal signal, indicating that the share price may move in the opposite direction of the prevailing trend.

Depending on whether a long wick is formed above or below the candle’s body, the share may witness a potential bullish or bearish reversal. However, it’s prudent to validate this reversal with the resistance and support levels of the share.
Also Read: Trading Charts

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Frequently Asked Questions

Long wick candlestick trading can be very profitable if you can accurately identify them by adhering to their identification rules. Also, it’s crucial to identify the current trend in the market. A bullish long wick candle is usually seen at the end of a downtrend, whereas a bearish long wick candle usually marks the end of an uptrend.

Sometimes, candlesticks have no wicks at all. Such candles are known as Marubozu candlesticks. A Marubozu candle forms when the opening or closing price of a share is equal to its highest or lowest price during a trading session.

The colour of a candlestick – which can be red or green – indicates the direction in which the market is moving. The green body means that the price of a share is increasing, whereas the red body means that the share price is declining. However, in the case of long wick candlestick trading, the colour of the candle has little significance.