Candlestick wick analysis

The term candlestick wick analysis refers to analysing wicks on candlesticks, which are used to gauge trends in the financial markets by comparing them to previous candlesticks. The wick refers to the part of the candlestick that hangs down below the body, which represents both its high and low points over a specific period. By focusing on these parts of candlesticks, you can gauge trends in financial markets, especially when candlesticks form patterns based on wicks.

Candlestick Wick Analysis

The wick is a thin vertical line on either side of a candle’s body. While some people may refer to the wicks of a candle, they are technically only referring to one. It is so-named because it resembles an actual candlewick. The terms wick bottom and wick top refer to whether a candle closed at its highest or lowest point to its prior candles. If a candle closes higher than its opening price, then it has a wicked top; if a closing price is lower than its opening price, then it has a wick bottom. A normal candle without any disturbances in its movement is said to have no wick. This simply means that when one candlestick ends, another begins immediately after without interruption in price movement.

When there is a break from price movement where there isn’t a new candlestick formed, it is referred to as having a wick or tails because sometimes tails can be long enough for light from previous candles to shine through. Though called wicks, they aren’t always exactly straight.

The shape of each wick (including curved ones) interprets different things about market sentiment over time. Singularly, wicks provide limited information about market direction. However, by comparing the size of several wicks with those preceding them and those following them, we can develop a better idea of the sort of longer-term trend that may exist.

For example, if there are three small daily wicks followed by a large fourth one, then it signifies that the sellers were stepping into sell orders throughout most of last week but started to become exhausted Friday night into Saturday morning. This indicates that the bulls saw an opportunity to step in and push prices higher. Conversely, if we see four similar-sized wicks followed by a much larger fifth one downward, then it tells us bears had more ammunition left in the late Sunday afternoon into Monday morning.

These are just two examples of how looking at multiple wicks can give us insight into how bearish or bullish overall sentiment was during certain periods within larger trends. By themselves, however, wicks don’t paint very complete pictures of overall market sentiment—you need to look beyond just one day to get an accurate assessment.

Advantages of candlestick wick analysis

  1. Separate price movements: The candlestick wicks separate price movements, so you can see what is happening at each level of supply and demand. This helps reveal trends earlier than using other forms of analysis alone.

  2. Shows market sentiment: The colour of a candlestick provides insight into market sentiment because it shows how long buyers or sellers were in control of price during that period.

  3. Helps confirm trends: Candlesticks are often used with technical indicators to confirm trend direction.

  4. Trend direction confirmation: A candlestick pattern showing two or more white candles followed by one black candle indicates that a downtrend has reversed to an uptrend (an example would be white candles on top of one another, separated by thin lines).

  5. Identify reversal points: Since a black candle means a seller won out over a buyer for most or all of that time, observing where it appears within your candlestick chart allows you to identify potential reversal points.

  6. Identify support and resistance areas: In addition to reversal points, support and resistance levels can also be identified from where different coloured candles appear on your chart.

Importance of Candlestick Wick Analysis

The candlestick chart is one of many chart types used by investors to analyze market behaviour. At first glance, candlesticks may seem simple, but they represent quite a bit of information about market activity. When more experienced traders look at them, they often see patterns—and that’s where candlestick wicks come in. A wick represents an upward or downward tail that sticks out past an individual candle body. These tails can be extraordinarily helpful in identifying trends and spotting common patterns among different instruments.

The wicks represent price action, and their relative lengths indicate if current prices are trending up or down compared to previous periods. Specifically, shorter wicks indicate a period of lower prices than previously seen and longer wicks mean higher prices than before. It’s important to note, however, that candlestick wicks do not have a uniform length – instead, they vary from as little as one day to as much as several months. In addition, many analysts argue you should ignore wicks altogether when trading since they have no predictive value for future stock performance.

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Frequently Asked Questions Expand All

The size of a wick tells you about how much money changed hands in that session. If you see large, thick candles with big wicks, it could mean prices gapped up or down dramatically. Large wicks can also be signs of uncertainty in the market—buyers and sellers are struggling to decide who has control. Smaller wicks can show less activity in both directions. They’re not as strong as larger wicks; small wicks tend to draw sideways rather than continuing in an upward or downward direction.

There is a wick on every candle. Look at how it burns from beginning to end. If it burns from left to right, it’s a bearish candle. Conversely, if it burns from right to left, that is a bullish candle. Now that you know what a bullish and bearish candle looks like, you can read them individually or in clusters based on trends.

Long wicks typically show price fluctuations that last for days or weeks at a time. If you see one, it could indicate oversold conditions in a security. Conversely, if a stock rises to a new high but has a relatively small body with an accompanying large wick to its right, it means there was very little interest in purchasing shares during the previous session. This may be an indication that investors will sell off their positions as soon as they can make a profit after the earnings release.