Trading with wicks

Candlestick charts are one of the most used charts in technical analysis. The candles on a candlestick chart have a body and a upper and lower shadow. The upper and lower shadow are also called the upper and lower wick of the candle.





Each candle is a representation of a battle that have been taking place. A battle between buyers and sellers. The shape of the candle shows how the battle has been fought. A long shadow is what traders call a “rejection”. A big upper shadow or wick means the price was going higher but the up move has been rejected. This means there were not enough buyers and too much sellers. The opposite when we have a long lower shadow. A long lower shadow means a rejection of new lows.

Special care should be taken when such a wick is seen at a resistance or support level. Most of the time you will see a build up of sell and buy orders at the different resistance and support levels. A lot of traders have the habit of putting their stops just above or under those levels. You can benefit from that behavior but that is another topic.

Trading based on the wicks only is not the way to go but they can be a great tool indicating a possible reversal or a confirmation of the current trend. Wicks on big time frames are more meaningful than on small time frames. Wicks can also be as a warning sign because they are an indication of the volatility of the market. A trader that prefers low risk trades with small stops will see the long wicks as a warning sign indicating he better waits for the market to settle down.

A lot of scalping strategies use the wicks as an entry signal. The value of the wick as a signal has a short life span especially on small time frame. When used in a scalping system it is best to close the position as soon as possible.

Below the code for a wick indicator for dealbook.

indicator wick_indicator;
/*written by ctlprogrammer*/
/*you can freely copy the code but plz leave this header*/
/*http://ctltrading.blogspot.com*/
draw line1("upwick"),line2("downwick");
begin
integer f := front(close);
integer b := back(close);
number upwick,downwick;

for f:=0 to b do
begin
if close[f]>open[f] then
begin
upwick:=high[f]-close[f];
downwick:=open[f]-low[f];
end;
if close[f]<open[f] then
begin
upwick:=high[f]-open[f];
downwick:=close[f]-low[f];
end;
line1[f]:=upwick;
line2[f]:=-1*downwick;
end;
end.