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What Is Candlestick Wick Analysis

11 Aug 2023

Candlesticks are used as one of the heaviest founding pillars of technical analysis. Candlestick wick analysis helps traders to obtain meaningful insights into price movement.

A wick is the thin needle-like vertical part of a candle extended on either side of the candle body. Candles comprise four values, namely high, low, open, and close. Wicks indicate the high and the low for a particular period.

Let's discuss the importance of a wick from a logical point of view!

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What Insights can the Wick Provide?

By wick size, you may develop an idea of the upcoming trend and how you should plan your next trade.

Let’s say, a candle opened at 90, travelled in the range of 80 to 95 and closed at 92.
In this case, the wick below = open-low = 90- 80, i.e. 10
And the wick above = high-close = 95-92 i.e. 3

  1. A long wick below the candle's body indicates sellers pushed the price below, buyers pushed it back upside with much more confidence.
  2. A long wick above the body tells how sellers have overpowered the buyers.
  3. The formation of longer wicks on both sides of a body while the body is comparatively smaller than the total wick size reveals that both the buyers and sellers fought hard to push the price on both sides, but closed the candle with indecisiveness.
  4. Similarly, short wicks indicate that the price mostly dwelt between open and close.

Does the Wick Percentage Matter?

Wick percentage can help you derive a better insight into the ongoing market sentiment.
To calculate it, let's say you have a wick of 10 pips and candle size (high-low) is 20 pips. Then the wick percentage is simply 10/20, i.e. 50%

  1. If the wick percentage is below 5%, then it says that either buyers or sellers had firm control over the closing.
  2. If the number is around 30-35, then the price is probably showing indecisiveness.
  3. Any number over 67 may indicate the price is heading towards a reversal with a weak closing.

What are the Advantages of Wick Analysis?

Potential reversal points

The formation of multiple long-wick candles indicates repeated price rejections from support or resistance zones, which in turn, can reveal upcoming reversals.

Trend analysis

Wick analysis, along with other technical indicators, is often used to gauge trend directions.

Market sentiment

As the wick percentage and the candle shape show the control of buyers and sellers, it can help identify market sentiment.

The Bottom Line

Wick analysis is an important part of technical analysis. If you note wick size and percentage carefully, it may add better insights to your trading and investing journey.

 

Related Articles: Unlock Market Insights With Marubozu Candlestick Pattern | What is Evening Star Candlestick Pattern | Difference Between Margin Trading And Short Selling | What Does a Paper Umbrella Candlestick Indicate

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