The Wick Phenomenon: How and Why Big Wicks Get Filled

8 ביוניIn trading, wicks on candlestick charts represent the highest and lowest prices during a given time period. Long wicks can often be seen as a sign of market indecision, but they also tend to get filled by subsequent price action.

This phenomenon occurs frequently and can provide valuable insights for traders looking to capitalize on price movements.

In this article, we’ll explore how and why big wicks get filled through practical examples.

Understanding Wicks and Their Significance

Wicks, also known as shadows, appear on candlestick charts when the price moves significantly above or below the opening and closing prices within a specific time frame.

A long upper wick indicates that prices were pushed up but then fell back down before the close, showing selling pressure.

Conversely, a long lower wick suggests that prices were driven down but then recovered before the close, indicating buying pressure.

Usually, at least 50% of the wick will be filled, and sometimes the entire wick will get filled before the reversal happens.

Why Do Wicks Get Filled?

1️⃣Market Psychology: Traders often see long wicks as areas of interest. For instance, if the price reaches a high but then falls, traders might anticipate a retest of that high.

2️⃣Liquidity Zones: Long wicks indicate areas where a lot of trading activity took place. These areas are often revisited as the market seeks liquidity.

3️⃣Mean Reversion: Prices tend to revert to their mean over time. A wick can be seen as a deviation from the mean, and the subsequent filling of the wick is part of the reversion process.

How To Trade It?

It all depends on your trading plan.

Here are some options:

Aggressive traders can buy/sell immediately after the wick has been formed.

Semi-conservative traders can look for a reversal pattern on a lower timeframe to confirm it.

Extra conservative traders can wait for the candle with the wick to be broken from the other side before entering.

Additionally, considering more confluences like key levels, market structure, and the overall trend will give you a better edge.

Why Now?

You might be wondering why I am posting this article now.

As you may have noticed, we had a dip yesterday, giving us a practical example on many altcoins and stocks. For this example, I have chosen DOGE, 4H chart.

I hope you like the content and found it useful.

Are you taking wicks into consideration in your trading plan?

If yes, how?

If not, why?

What would you like me to discuss next?

Always remember:
📚 All Strategies Are Good; If Managed Properly!
~Richard Nasr