Candle Wick Trading Strategy guidelines (PDF)

Candle Wick trading is one of the easiest trading strategies used by newbies. The candle wick trading strategies work on every asset and they have high accuracy no matter the analyzed time frame. However, manipulation could sometimes occur, which could mislead traders into a trap, making them loose a fortune. In this coures, will explain how to use the 

Candle Wick Trading Strategy Guide

What is a Candlestick Wick?

A candlestick wick is a line below or above the body of the candle (the body is the colored part). This line is drawn using the prices of a trading session. In other words, the line indicates the highest and lowest prices reached during the trading session. Thus it illustrates price fluctuations.

A candle is constructed using 2 main parts, a body, and a wick. A body contains the open and close of each session.

The body of a bullish candle is green because the market opened at a low price and closed at a higher price. Note that if there is a wick at the bottom of a bullish candle, this means that the open price isn’t the lowest price of the session.

Also, the existence of a wick on the top of the candle indicates that the closing price isn’t the highest reached price, but, it’s still higher than the opening price.

On the other hand, The Body of a Bearish candle is red because the market opened at a high price and closed at a lower price. Furthermore, if there is a wick on top of the candle, this means that the open price isn’t equal to the highest price.

Similarly, if there is a wick on the bottom of the candles, this means that the closing price and the lowest price aren’t equal. Yet, the trading session closed at a lower price than the opening.

Wicks example

Candle wick trading Bearish Bullish
However, when trading candle wick we will face many forms of candles such as:
  • No wick candles.
  • Candles with Wick at the top only.
  • Candles with Wick at the bottom only.
  • Candles with Wick at both sides.
Of course, the size of the body depends on the distance between the open and close prices. The longer the wick, the more the price fluctuated during the trading session. Experts believe that a long bottom wick is a sign of potential trend reversal only when the market is moving in the opposite direction of the wick. The long bottom wick describes that the price fell too much and went up before the close of the trading session. Furthermore, the long wick indicates a huge increase in buying. Thus, an increase in the selling pressure.

Green Candle with a Long upper wick example

A green candle with a long upper wick may appear during a long uptrend. This candle has a short or no lower wick.

This candle is green, yet, it is a Bearish candle. Thus, it indicates potential trend reversal, switching from an uptrend to a downtrend. The reason behind this sign is that the price tried to rise significantly more than the previous session ups.

The long upper wick demonstrates the price increase. However, the small body indicates that the Bears took over the market and that the bulls lost control by the end of the day. This indicates in turn that the close and the open prices of the day are near each other.

However, this candle may be a false alarm, the only way to know if it is accurate or not is to wait for the next candle. To be sure 100%, the next candle must preferably be Bearish with an open price lower than the close of the previous and that its highest price won’t surpass the highest of the previous candle. Yet, when trading candle wick, detecting 3 to 5 bullish candles before the long upper wick candle may be a sign of accuracy.

Green Candle with long upper wick

Red Candle with a Long upper wick example

A red candle with a long upper wick may appear during a long downtrend. This candle has a short or no lower wick.

This candle is red, yet, it is a Bullish candle. Thus, it indicates potential trend reversal, switching from a downtrend to an uptrend. The reason behind this sign is that the price tried to rise significantly while it was going down in the previous sessions.

The long upper wick demonstrates the price increase. However, the small body indicates that the Bears took over the market and that the bulls lost control by the end of the day, even though they’ve gained confidence. This indicates in turn that the close and the open prices of the day are near each other.

The Candle is always Bearish with the closing price below the opening price. However, this red candle with the long upper wick may be a false alarm. It needs confirmation from the next candle.

To be sure of the potential Bullish reversal, when trading candle wick, the next candle must be preferably bullish. Furthermore, its opening price must be higher than the opening of the previous candle. Also, the highest price must exceed the highest of the previous candle.

Red Candle with long upper wick

How to trade with candle wicks?

  •  Green candle with a long upper wick

Candle wick trading using the long upper wick Green candle is quite simple. First of all, start by looking at the current trend that should be Bullish in this case. Once the trend is identified, keep an eye on the candlesticks of each day. Once you spot a candle where the highs exceed the normal daily highs. Stay alert as it may be the Green candle with the long upper wick.
Once detected, traders have 2 options, one for risk-averse and one for forex risk lovers.

  • High Risk: Risk lovers tend to trade once they spot a huge increase in prices that isn’t normal. They start entering short positions or putting a stop loss order.
  • Low Risk: Risk-averse traders tend to wait for the next where they observe the formation of the candle if the opening of the candle is lower than the close of the previous candle. They tend to start trading immediately.

Example

As an example, were going to analyze the USD CAD currency movement chart. The long wick Green candle has appeared at the end of an uptrend indicating a potential reversal. The next candle was a Bearish candle that confirmed the trend reversal signal. Traders who own the asset may sell during the formation of these 2 candles to avoid catastrophic losses.

Those who do not own the asset may also enter a short position during the formation of these 2 candles so they may lock in the highest possible profit.

Example candle wick shooting Star Green examples
  • Red Candle with a long upper wick

Similar to the Green candle, trading the red candle with the long upper wick is easy. The trend should be Bearish in this case. In other words, a downtrend. Once the trend is identified, start looking for forex price change each day. If you remark that the price went up above the normal high of the previous day, it may be a reversal signal.

Thus, the action will remain based on the trader’s risk preference. A risk-loving trader may enter the market immediately once he observes that the price went significantly up. On the other hand, a risk-averse trader may wait for confirmation from the next candle. If the open price of the next candle is higher than the opening of the previous candle, he may proceed to enter a long position.

Example

The following example represents the analysis of the USD CAP currency chart. A Red candle with a long upper wick has appeared during a long-term downtrend. Signaling a potential trend reversal. The Bears took control at the end of the trading session. Yet, the next day, Bulls dominated the market, constructing a Bullish candle that confirmed the trend reversal signal. Prices went up, and those who bought the asset during these 2 candles should have locked in the highest possible profit.

Candle wick Inverted Hammer examples

Concolusion

  • Candle wick trading is an efficient strategy used to predict price movements.
  • 2 types of candles predict the trend reversal. A red candle and a Green candle, both have an upper long wick.
  • However, the upper long wick candles need confirmation from the next candle.
  • Sometimes, the candles may give a false signal due to manipulation that occurs during trading sessions.