A wick indicates the highest and lowest prices at which an asset has traded over a period of time.
A wick can rise above the opening price or fall below the closing price. It helps to better understand market sentiment and momentum. Wicks form as the price of an asset moves relative to the opening and closing price.
In a financial context, a wick is a line that helps depict ranges of high and low price movements. When reading a candlestick chart, traders should focus on three points. These three points are:
- Opening price
- Closing price
- Candlestick wicks
Wicks represent the opening price and closing price movements.
There are two main forms of analysis for trading: Fundamental and technical analysis.
Fundamental analysis focuses on the performance of the organization or company to which an asset belongs to provide clues about its future movement. The fundamental analysis tracks earnings. Technical analysis focuses on price movements. Technical analysis is used to predict the future direction of prices based on price movements. Fundamental analysis tells investors which assets to trade, while technical analysis tells them when to trade the assets.
What Does a Wick Mean on a Candlestick Chart?
Every candle has open, high, low, and close points. These points represent the price of an asset and are the points that cause the candle shape to form. The hollow or filled box part of the candle is called the body. The lines at the ends above and below the body are called the wicks. Wicks represent the high or low range in price movements over time.
The long upper wick on a candlestick chart indicates a decline in prices, while the long lower wick indicates a rise in prices. The long upper wick forms when prices move over the period. If the long upper wick moves downwards, it means that a decline will occur. In a bear market, the price moves downwards and the long lower wick is formed.
The length of the wicks matters:
- Short wicks indicate that the highest or lowest price is close to the opening or closing price.
- Long wicks indicate that the market is experiencing high levels of volatility. Some analysts think that long wicks usually indicate a price reversal.
How to Trade a Candle with Long Wicks?
When a downtrend has one or more candles with long wicks above it, it means that there is a high probability that the price will move downwards in the direction of the market. When a long wick is above or below a trend, it can be traded as a bearish reversal. It should be confirmed or validated by resistance or support levels. A long wick, in general, occurs when a trend ends and is immediately followed by a reversal of price action that creates a new counter-trend.
What Is a Candlestick Chart?
A candlestick chart is a chart pattern that shows the lowest, highest, opening and closing prices of an asset over time. A candlestick chart is a technical analysis method that provides information about the current trend. A candlestick chart is made up of a body and wicks.
Green candles indicate rising prices. The open is below the body and the close is above the body. Red candles indicate falling prices. The open is above the body and the close is below the body.
The body of the candle shows where the opening and closing prices are at the point in time of the candle. The lines at the top and bottom of the body are called wicks. The wicks show the highest and lowest price reached by the asset at the time of settlement.
