In technical analysis, the candlestick wick highlights the highest or lowest price a cryptocurrency has traded during a particular period. Candlestick wicks are important because they help traders better understand the market sentiment and momentum.
However, the wick themselves come in different shapes and sizes. When the wick of a candlestick is longer, it carries more weight in the market activity than smaller wicks. So, the bigger the wick relative to the others, the better.
A candlestick chart’s main advantage is that it packs a lot of information in its design. So let’s go through its anatomy.
Body: the body gives you where a price “opened” and “closed”. The opening price happens at the beginning of the specific period, and the closing price happens at the end.
Wick: denoted by the thin lines of each candle, the wick represents how much the price has fluctuated. The top of the wick, called the upper shadow, represents the high of that specific period, and the bottom of the wick, called the lower shadow, represents the low.
Color: individual candles can be green or red. Green indicates a positive change in price (price closes above the opening price) and red indicates a negative change (price closes below the opening price).
The candlestick wick is crucial because it reveals a change in the market sentiment or a shift in the supply and demand equation. Whatever the catalyst that caused the shift in the market sentiment, the wick is a visual representation of what happened behind the curtain.
Wicks that develop after a one-sided price move either up or down signal that the market may reach a top/bottom. While a single wick may not be sufficiently effective for a trading setup, if multiple candlesticks with long wicks overlap, it’s more likely to see a change in the market sentiment.
In this case, a bottom is easy to identify. You can mark it as a price zone on your chart where multiple overlapping wicks show rejections or unwillingness for the price to move lower.
Bottom line: Candlestick wicks should not be ignored as they can play an essential role in identifying the bottom of a bear market.