The Significance Of Candlestick Wicks
What is a candlestick chart
Candlestick charts in trading are price charts that show trends and reversals, in which the prices are denoted by candlesticks. Candlestick charts were invented by Japanese rice traders in the 1700s. Each candlestick represents four price points: the open, close, high and low price points of the time frame used.
The candle as a whole tells a great story of what has happened and what is likely to happen in the future as far as price is concerned. A wick which can be called a shadow or a short or long tail of a candlestick is a line that develops above or below the body of a candlestick.
Every candle has a body and mostly two wicks others will just have one wick. There are four price aspects to a candlestick: the opening and close prices, the high of the timeframe, for example a day and the low. The wicks are also called shadows. Depending on the price action, the shape of the candle changes. The wicks are indicative of the highs and lows.
Formation of wicks
- When a wick forms above a candlestick, it means a price is moving up and then the market perception is changed by traders and suddenly the price is pushing downwards the open by sellers.
- For the wick that forms below the candlestick, it means the price was moving down but the market psychology changes and price starts pushing up towards the close buy the bulls.
- So basically wicks are a result of change in the market sentiment.
The significance of candlesticks wicks
- Candlestick wicks with longer upper shadows mostly happens when an uptrend is losing strength.
- The lower shadows occur when a downtrend is likely to come to an end.
- If a wick is 5 per cent or less, then it is indicative of a highly strong close of the candle, or that either the bulls or the bears are in strong control
- If the percentage is 30 to 35 per cent, it is indicative of indecisiveness, where neither the bulls nor the bears are in control.
- When the wick reaches 50 and 67 per cent shows a weak close of the candle, the upwards of 67 per cent shows an extremely weak or reversal close of the candle, when the reversal is likely to happen.