Wick Reversal Setup
Last updated
Last updated
This pattern can spotlight some of the best reversal opportunities in the market. Remember, the market auctions are higher in search of sellers and lower in search of buyers.
When the market over-extends itself in search of market participants, it will find itself out of value; responsive market participants will sometimes enter the market with force, which aggressively pushes the price in the opposite direction, essentially forming reversal wick candlesticks.
When a reversal wick forms at the extreme of a trend, the market tells you that the trend has stalled or is on the verge of a reversal.
PATTERN SUMMARY
The body is used to determine the size of the reversal wick. A wick that is between 2.5 to 3.5 times larger than the size of the body is ideal.
For a bullish reversal wick to exist, the bar's close should fall within the top 35 percent of the overall range of the candle.
For a bearish reversal wick to exist, the bar's close should fall within the bottom 35 percent of the overall range of the candle. Types of wick reversals candles
PATTERN PSYCHOLOGY
When the market has been trending lower and then suddenly forms a reversal wick candlestick, the likelihood of a reversal increases since buyers have finally begun to overwhelm the sellers. Selling pressure rules the decline, but responsive buyers entered the market due to perceived undervaluation.
For the reversal wick to open near the high of the candle, sell off sharply intra-bar, and then rally back toward the open of the candle is bullish, as it signifies that the bears no longer have control since they were not able to extend the decline of the candle or the trend. Instead, the bulls were able to rally the price from the lows of the candle and close the bar near the top of its range, which is bullish – at least for one bar.
One easy method to help further confirm this setup requires the bar's close price following the reversal wick-candlestick to be lower than the low of the wicking candle –for taking shorts (reverse for longs).
