Wick Candlestick - Wick Trading Analysis

Have you ever wondered how traders predict market movements or spot reversals in prices? Candlestick charts, a common tool in technical analysis, help traders understand these changes by showing price movements during a specific time.

Each candlestick has a body and two wicks (also called shadows), which represent the highest and lowest prices in a session. By learning to analyse candlestick wicks, you can gain useful insights and make better trading decisions.

What Are Candlestick Wicks?

A candlestick shows four important prices during a session:

Opening Price – The price at the start of the session.
Closing Price – The price at the end of the session.
High Price – The highest price reached.
Low Price – The lowest price reached.

The body of the candlestick is the range between the opening and closing prices, while the wicks show the highs and lows. Wicks tell you how far the price moved, even if it didn’t stay there. For example, a long wick can mean the price went very high or very low during the session but didn’t stay at those levels.

Implications of Candlestick Wicks

Candlestick wicks offer valuable insights into market behaviour and sentiment, making them an important part of technical analysis. The position and length of the wicks highlight the ongoing battle between buyers and sellers, providing key information about market dynamics.

1. Market Control

A long upper wick means buyers initially drove prices higher, but sellers regained control, pushing prices back down before the session ended.
A long lower wick shows sellers pushed prices lower, but buyers stepped in to reverse the trend and ended the session on a strong note.
Short wicks indicate that most trading occurred near the open and close prices, reflecting stability and strong control by either buyers or sellers.

2. Identifying Support and Resistance

Wicks are crucial for identifying and interpreting support and resistance levels.
At a support level, a long bottom wick suggests buyers are defending the level, which may lead to a reversal or price stabilisation.
At a resistance level, a long upper wick indicates that sellers are actively preventing the price from rising further, making it less likely for a breakout to occur.

3. Quantifying Market Strength with Wick Percentage

Wick percentage analysis adds a quantitative layer to the analysis, helping traders measure the strength of a trading session.
Low percentages (0–5%) indicate strong momentum in the direction of the close, reflecting control by buyers or sellers.
High percentages (30–67%) suggest indecision, while extremely high percentages (above 67%) often signal a potential reversal.

4. Validating Price Levels

Wicks can validate previously identified price levels, confirming their significance.
A long upper wick near a resistance level reinforces its importance, as sellers are strongly defending that level.
Similarly, a long bottom wick near support shows that buyers are reinforcing the price at that level.

By studying wicks, you can get clues about whether the market is likely to reverse or continue in the same direction.

How to Calculate Wick Size?

You can calculate the size of a wick using the high, low, open, and close prices of a candlestick:

Top Wick Size = High Price − Higher of Open or Close Price
Bottom Wick Size = Lower of Open or Close Price − Low Price

Example: If a candlestick has:

High: 18,200
Close: 18,180
Open: 18,100
Low: 18,080

Then:

Top Wick = 18,200 − 18,180 = 20 points
Bottom Wick = 18,100 − 18,080 = 20 points

What Do Wick Sizes Tell You?

Short Wicks: Show that buyers or sellers had strong control, as most trading happened between the open and close prices.
Long Upper Wick: Suggests buyers tried to push prices higher, but sellers regained control.
Long Lower Wick: Suggests sellers pushed prices lower, but buyers regained control and ended the session strong.

The wick you focus on depends on the situation:

Bottom Wick: Useful near support levels to see if the price is likely to reverse or break through.
Top Wick: Useful near resistance levels to understand if the price might continue or reverse.

Wick Percentage Analysis

Wick percentage helps you understand how strong or weak the trading session was. It is calculated using this formula:

Wick Percentage=Wick Size/Candle Size×100

What the Percentage Means:

0–5%: Strong close, showing control by buyers or sellers.
30–35%: Market indecision, meaning neither buyers nor sellers dominated.
50–67%: Weak close, indicating a potential reversal.
Above 67%: Very weak close, making a reversal more likely.

Example: If the wick size is 5 pips and the candle size is 20 pips, the wick percentage is 5/20×100=25%. This shows moderate strength in the close.

Advantages of Candlestick Wick Analysis

Candlestick wick analysis provides traders with several key benefits, helping them better understand market dynamics and make informed decisions:

1. Identify Reversals:
  - Long wicks often signal potential market reversals.
  - For example, a long upper wick may indicate that sellers regained control after buyers pushed the price higher.
2. Validate Support and Resistance Levels:
  - Wicks can confirm whether price levels are holding or breaking.
  - A long bottom wick near support suggests buyers are defending the level, while a long upper wick near resistance shows sellers are active.
3. Enhance Precision in Trading:
  - Wicks provide detailed insights into price movements beyond what the candlestick body shows.
  - This helps traders understand price extremes and subtle market shifts.
4. Quantify Session Strength with Wick Percentages:
  - Wick percentages highlight whether the market is showing strong momentum, indecision, or weakness.
  - For instance, a wick percentage of 0–5% indicates a strong session close, while percentages above 67% suggest potential reversals.
5. Better Decision-Making:
- Analysing wicks in conjunction with other technical tools allows traders to make smarter and more precise decisions.
- It helps manage risks by identifying patterns and market sentiment effectively.

Incorporating wick analysis into your trading strategy provides a more complete view of price action, enabling you to spot opportunities and minimise potential losses.

Importance of Wick Candlestick

Candlestick wicks are crucial in technical analysis because they reveal the market’s price extremes during a session. They provide insights into how far the price moved beyond the open and close levels, even if those extremes were temporary.

This helps traders identify key price levels, such as support and resistance, and predict potential reversals or breakouts. Wicks also shows whether buyers or sellers were in control during a session, giving a better understanding of market sentiment.

By focusing on candlestick wicks, traders can detect subtle price behaviours often missed by analysing the candlestick body alone. Incorporating wick analysis into your trading strategy offers a clearer picture of market dynamics, enabling you to make informed and precise trading decisions.

Conclusion

Candlestick wicks are an essential part of technical analysis, offering valuable insights into price movements, reversals, and breakouts. By understanding the size and percentage of wicks, you can better assess the strength or weakness of a trading session and predict market behaviour.

Always combine wick analysis with other tools for a complete understanding of market trends. Whether you’re new to trading or have years of experience, mastering wick analysis can help you make better decisions and improve your results.