Traders use candlestick charts to identify the price movements based on the stock's past performance. These charts reflect four major price points i.e. open, close, high, and low, throughout a specified time period. A candlestick chart is read in three parts- body, wick, and color.
The wick/shadow of the candlestick reflects the high and low touch points of all intraday transactions held for that particular day. The relative wick lengths determine the uptrend or downtrend of the price movement. Hence, each candle can be classified as a short or a long wick.
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What is a long wick candle?
The wick in a candlestick chart, which appears to be significantly longer than other candles, is known as the long wick candle. A long wick candle indicates a higher stock price than the past performance.
The long-wick candle represents a reversal trend in the stock movement. It means the share prices will move opposite the ongoing price trend. If there is an uptrend, the share prices might fall; if there is a downtrend, the share price might increase soon.
What are the features of a long wick candle?
Some of the salient features of a long-wick candle are as follows:
- The chart shows a long wick above or below the candle's body.
- Based on its location on the body, a long wick is further classified into a long wick upper candle or a long wick lower candle. The former is formed when the share price is seen moving rapidly towards its high point but closes at a relatively lower price, and the latter is formed when the opposite happens.
- In a long-wick upper candle, the initial trading session is dominated by buyers, leading to an increase in the stock price. However, towards the end of the session, the prices fell to normal because of the sellers' interference.
- Similarly, in a long-wick lower candle, the sellers dominate the initial trading session, which leads to a decrease in the stock price. However, due to the interference by buyers towards the end of the session, the stock prices were again pushed upwards.
- The share prices witness a potential bullish or bearish reversal depending upon the positioning of the long wick on the candle's body. If it is on the upper side, the share prices experience a bullish reversal; if it is on the lower side, they experience a bearish reversal.
In short, candlestick training is one of the most effective ways to analyze short-term stock price movement. It is always better to identify the development of the long wick at the resistance or the support level and make decisions accordingly to earn profitable returns.
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