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We have covered the importance of candlestick wicks in some articles in the price action submodule. Weeks emphasizes reactions, which can be crucial as traders because they may give us clues about what might be happening around the next corner. In the realm of analysis there is only probability, if something “big” happened today, it still matters tomorrow, which really encapsulates the essence of incorporating wicks or reactions into a trader’s approach to price action.
Introduction to Technical Analysis
candlestick pattern
However, not all wicks are created equal, and long wicks can be especially interesting because they highlight the strong reactions during the candle. But I want to discuss one specific type of wick in this article, as it may be an attractive point of reference for those looking for a reversal. But before we talk about why it’s set up or how to use it, let’s take a look at one.
The candle I’m referring to is the last candle on the right side of the GBP/USD daily chart:
GBP/USD daily chart
Notice how this candle has a long upper wick with a relatively small body at the bottom of the formation?
So, the day basically started as a continuation of the previous trend, during which the candle formed, traders were very excited and pushed the pair to new highs. But the excitement didn’t last long as the price was rejected after breaking the 1.4200 level before erasing most of the daily gains.
This form is called a “Pin Bar”. Pinocchio is short for Pinocchio and is used to indicate when the market might be getting too excited. Just as Pinocchio’s nose gets bigger when he lies, the market quickly reverses this boom as buyers overtake itself, creating a one-sided candle that contrasts with previous price action.
It’s important to “stand out” here because the idea is that the price has hit a long-term or larger resistance area that could change the price. This is illustrated by the lengthening wick of price action – which underscores a reaction that may have more leeway.
In the image below, I take a look at what happens next.
In the example above, the market continues to reverse. The pin bar was just an early sign of sellers entering after hitting that high, which led to several weeks of bearish pressure.
As an added note, the same price level that started reversing a few months later is back in the equation. It was resistance again, but this time buyers failed to recover. This highlights how a wick of price action can act as a key indicator of support and resistance, it also shows how a pin bar can give an early glimpse of a level that might carry weight in the market, as long wicks point to the first test-sellers Show resistance at this level – can stay for a follow-up test, then continue to hold resistance.
GBP/USD daily chart
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