Investment Consulting

Wednesday, April 3, 2013

Trading Candlestick Wicks

Trading Candlestick Wicks

Finding the right trading strategy is one thing that can determine your daily results as a trader no matter which market you’re in. Some people will spend a lifetime searching for or creating a viable strategy and then not stick with it. This is why when you find something that has potential you should give it enough testing as possible; both backward and forward.

Candlestick charts have been around for many years. The patterns that form on the charts help a trader decide which way they want to take their trade. One popular style that we want to share with you is about trading based upon what you see on these charts. Wick Trading is what we like to call this particular method. The reason for this is because candlestick lengths and wicks tell stories. We use these stories to try and determine what the future outcome will be. Trades are determined based on the price action on the screen in front of you.

To break this down deeper we will use some images from a MetaTrader 4.0 chart. These charts can be found with most Forex brokers. Although you can trade these wicks on any currency pair with different variations, we will focus on the EURUSD. This currency pair is the most widely traded pair and allows for some of the best movements during the peak trading times.

There are multiple possible methods when seeking out a trading opportunity with these particular candles. We like to use five minute candles to help us find our trades. There are two major setups that become apparent once a candlestick wick has developed.
Let’s go over some of the rules first.

Try to stick with the overall current trend for that day or the current week. (Not critical, but it gives you a bit more momentum) Should the price be at a whole number make sure you use that as the reversal point. We will go over this in more detail. Don’t trade every wick you see. Look for extreme moves with a lengthy wick before you enter the trade. When we say enter a trade we mean a trade going the opposite way of the WICK.

How Do You Know When to Enter?

This is something that will come with time. We look for one of two things for our entry.
We get in immediately after the wicked candle is closed while setting a stop above the wick or near the next area of support/resistance depending upon the direction. This will have to be individually determined for each trade.
The next way we like to trade wicks is to watch the candles’ price climb up this wick after it is developed. This could happen on the next candle or even many candles later. We’ll touch upon this again soon.

How Do You Know When to Exit?

This is probably the most difficult question to answer; it will depend based upon your risk tolerance. Sometimes it’s best to take your scalp and walk away. Other times you want to take some money off the table and let the rest run. This discretion will be up to you as an independent trader. We find it best to always put money in the bank and try to get bigger runs from the rest. If you were to trade 1 standard Lot you could claim .6 and let the rest run with a trailing stop. If you are a binary options trader, you will have a set time for this trade to finish. You are looking for it to close in your direction within the expiry time.

One other way we like to trade these long wicked candles is waiting for some sort of resolution after the fact. Knowing what happened in the past may predict similar results for the future. Not always of course, but if you see a nice wick formed in the early morning it may come back into play later in the day. This means price will have to climb the pole of the wick which carries a lot of resistance or support depending on the direction.

MG / Negocios e Inversiones

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