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What is Long Wick Candle

When trading with candlesticks, traders are often attracted to the analysis of the candle's body and its shape. But in reality, wick, especially long wick analysis, can be the cherry on top of the cake.
Usually, long wicks indicate a situation where one side, either bulls or bears, is overpowering the other with better conviction to move the price.

Let's look closely at the information it reveals and how you can trade them!

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How to Pick a Long-wick Candle?

  • Look for a long-wick candle next to a candle oversized compared to the nearby ones.
  • Try to understand if any potential support or resistance zones are there with the wick formation.
  • Consider the strength of that zone with the confirmation of the candle wick to evaluate if any trade opportunity is there or not.

What is the Psychology Behind it?

A long bottom wick formation in any potential support area reveals that the bulls are trying hard to overpower the bears. It also indicates that the price is getting rejected from a level where bulls are supposed to reverse the momentum.
In this way, long upper wick formation in a potential resistance zone tells the exact opposite story.

How will I Trade Long-wick Candles?

  1. Your first step should be confirming the trend direction. In a downtrend, if one or multiple long wicks are forming, then the market is probably trying to extend the downtrend. The same can happen in an up-trending market as well.
  2. A reversal signal can be generated if these candles are appearing at the top or bottom of an existing trend.
  3. These trades are fueled by the psychology that the market is trying to pause temporarily before creating a new trend.
  4. For extra confirmation, look for a follow-through candle in the desired direction after the long-wick candle. A follow-through candle can appear to support a similar interest.

What's with Long Wicks on Both Sides?

Some candles can have long wicks on both sides and the wicks are almost equal, with a comparatively smaller body in the middle. These are called spinning tops. It indicates both bulls and bears are actively trading to direct the price movement while none can overpower the other.
In this case, wait for a strong bullish or bearish candle following the spinning top to understand which entry side can be the prudent course of action.

To Sum Up

Long-wick candles can add great value to your trading calls if combined with the power of existing support or resistance zones. It can help calculatively anticipate trend reversals as well as trend continuations more efficiently if you pay close attention.

 

Related Articles: Understanding Shooting Star Candlestick Pattern | What Are Momentum Indicators | A Complete Guide to Understanding Bollinger Bands | What is trading on equity

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