What Are Long Wick Candles? All You Need to Know

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The recent years have seen a huge rise in the number of retail traders. While some of them have used fundamental analysis to study their investment opportunities, a lot of them have turned to technical analysis. Technical Analysis is normally used for trading a security in a shorter time frame.

Understanding Candlestick

One of the most prominent techniques under technical analysis is the candlestick pattern or candlestick analysis. Candlestick analysis has always been one of the most vital factors of technical analysis, although such an evaluation specializes in the body of the candle. However, wicks or shadows form a key factor of the candlestick, most commonly due to the fact that they suggest a severe change in price levels, that is, the high and low of that particular trading session. Wick trading consequently looks at the price levels that form outside of the days open and close prices. The length of the wick is extremely essential while considering wick trading strategies. 

When the wick is short, it denotes that trading was generally held between open and close prices of that particular period. Conversely, while the wick is long, it denotes that the price movement has crossed or broken the limits of the open and close price limits. However, there’s a distinction between a long upper wick stick and a long lower wick stick. A long higher wick candlestick happens whilst the high of the candle is extremely strong however then the close price is weak. This means that even though buyers attempted to dominate the majority part of the session, the sellers ultimately managed to bring down the price. If the lower wick is longer, it denotes that the trading session ended on a strong note where the sellers dominated but the buyers managed to push prices up.

What are Long Wick Candles and How to Identify them?

Trading in long wick candlestick takes place in situations where prices are undergoing a test after which gets rejected. Wicks are meant to be considered levels of rejection. Even before a long lower wick is seen, there is a long bearish candle wherein the bears are in control, and the bulls begin putting pressure on prices to change the trend to an upward direction.

The prices begin moving upward, and reveal a greater lower shadow, or tail. What was previously a bearish and long candle will now be a long tail. Similarly, a long upper wick candlestick starts with a bullish candle and just as the bears begin displaying control, prices start to fall which reveals a greater upper wick or shadow.

Normally, the upper and lower wicks aren’t equal. But there are instances when neither of the wicks is longer than the other. Such candlesticks have a long upper wick and an extended tail but the body is small. When this type of candlestick is seen, it is known as a spinning top. This shows that there may be a stalemate among bulls and bears, both of which had been trading actively.

Then there are times where candlesticks have no wick or tail at all. These candlesticks are referred to as marubozu candlestick. A red marubozu is when the opening price is equal to the high, and the closing price is equal to the day’s low. These candles are bearish in nature. A green marubozu is the opposite. These candles are bullish in nature.

These are conditions that demonstrate that wick trading not only includes long or short wicks and tails, but sometimes no wicks or equal long wicks and tails. Wick trading is exceptionally important because wicks let us know all about supply-demand changes, sentiment of the market or information that has an effect on price changes.

Long wick candles can be identified by:

• Long wick candles are relatively easy to spot due to their long candle wicks.
• Identify long candle wicks which are above or below a candle which is noticeably longer than the other ones on the particular day.
• Look for price points which are likely to form in line with the long wick, denoting support and resistance levels.
• Use the above mentioned levels and the long wicks together to identify any trade prospects.

 Types of Long Wick Candles

There are two types of long wick candlesticks:

1. Bullish Long Wick Candlestick

   In this type of candlestick, there will be a long tail below the body of the candle. It can be located once a downward trend comes to an end, that is, after the price has taken a steep fall. The appearance of a long wick candle in this position can denote a possible bullish reversal signal, which shows an uptrend in the price, meaning the security is bottoming out, which could be followed by a rise in price. The long tail below the body is indicative of the sellers trying to push the price down by a significant amount, but the buyers managed to push it back up. The buyers do this by showing a definitive buying strength, which will lead to an increase in price.

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   Bearish Long Wick Candlestick:

   In this type of candlestick, there is a long wick above the body of the candle. It is located after an uptrend ends, that is the price has seen a huge jump. The appearance of a long wick candle here can denote a bearish reversal signal, meaning that the security is topping out, which could be followed by a sudden drop in the price. The long wick above the body of the candle denotes that the buyers attempt to overpower the sellers has failed, and the sellers will now successfully drive the price downwards, and their momentum will lead to a decrease in price.

Trading with a Long Wick Candle

Once traders are well versed with reading charts, candlestick patterns, and technical analysis, and they can spot long wick candles with ease, they will have to learn how to take entries and exits from positions in the market, and place stop loss orders, and book profit. Traders need to learn patience and should now immediately enter a trade once they have spotted a long wick candle. They will need to wait for further confirmation, as candlestick patterns cannot be used alone, they will have to be used along with other technical indicators or trading tools so as to confirm the direction and avoid false breakouts.

Once the trend is identified, if it is in a downward direction, seeing a candle, or many candles, with long wicks on top of their bodies, denotes a strong potential for the price to fall further.

A long wick may be traded as a reversal pattern while it is seen at the lowest point or at the top of a trend that is a small one.

It must be confirmed or tested by resistance or support levels. Support is the extent at which there may be a probability of a pause in the downtrend. Resistance is the opposite of support level.

A long wick candle usually takes place while a trend is coming to an end and shortly before there is a possibility of a price action reversal, forming a new opposite trend.

Trading on long wick candlesticks can prove to be very profitable if traders can easily identify them by strictly following the identification rules. A bullish long wick candle is normally at the end of a downtrend, while a bearish long wick candle is usually at the end of an uptrend. However, like several trading strategies, long wick candlestick trading requires traders to have a certain amount of risk appetite. A long wick candle is only a sign that suggests that there could be a potential opportunity of a trend reversal and does not fully confirm that the reversal will happen. Thus, traders are recommended to use this pattern along with other technical indicators and practice with such combinations before making use of them in trades.