When a candlestick has a large upper or lower wick coming out one end of its body, it represents a rejection response from the market.
This rejection can be an early warning indicator to a pending reversal.
Long wicked candles are the templates for candles like: the pin bar, hammer, shooting star, and my favorite the rejection candle (which is what I mostly trade).
The long wick on a candle’s anatomy suggests the market is likely to turn around into higher or lower prices, depending on which way the rejection is coming from.
In short, it is a price action reversal signal, because it is possible to make forecasts of future price movement based off this rejection.
That is why reversal/rejection type signals are very popular – traders buy or sell the markets when they spot long tailed candles reacting with their technical “areas of interest”.
Lets have a look at some examples…
The long tailed candle above is signalling the market is likely to follow through with the bearish rejection and move lower.
We can see that it certainly did follow through to the downside, producing a profitable trade.
Lets check out a bullish example…
Where do you think the market is likely to move after two candles consecutively print large lower rejection wicks?
Yes, this one did produce a nice bullish move that followed through with the lower wicks.
But can you just blindly trade off every large rejection wick you see? Here is a really obvious one…
So based on what we’ve seen so far, this long wicked candle paints a pretty clear picture to where price is heading.
With an upper wick like that, the market is going to move down, right?
Nope, the market didn’t follow through with our expectations!
What happened? Well, welcome to Forex trading – where nothing is guaranteed.
That’s why “risk management” is a huge part of your trading education, to prevent big losses on our accounts when things don’t go expected.
I just wanted to break the flow of winning trade examples here so I don’t paint a picture of the promised land, and keep things in-line with actual real trading conditions.
Large wicked candles are very popular, they can produce very profitable moves – but they don’t have a 100% win rate.
It helps when you combine the large wicks with other strong technical features from your chart analysis to build a logical trade idea.
NOTE!!!
Long wicked candles are an easy to spot feature from price action, and usually signal a pending reversal in the market. Don’t let them be your only factor in a trade decision, combo them with other high value technical areas on your chart, and bring it all together to build value into the trade idea.