Never miss a story from Matthew Russell

Subscribe to recieve updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from Daily FX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to Matthew Russell

You can manage you subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

Weekly Trading Lesson by Matt Russell

3/18 Long Wicks

Trading Candlesticks

General Logic: A candle which contains a long wick means that while the candle was open, a large reversal must have occurred. That reversal could be caused by a large order at the low point or high point of the candle or the momentum that caused the initial move may have ceased. We will never know exactly why, but in a sense, that does not really matter. A high on a long wick to the upside or a low on a long wick to the downside represent a price point that we can utilize to set up trades. The high or low point is a reference point that we can use for stop placement. The market has given us a piece of information and we can then use that to our benefit.

Specific Trade Idea: Once you have identified a long wick, take note of the high on a long wick to the upside, or take note of the low on a long wick to the downside. That high or low will be our reference point. Our stop will be placed a few pips above the high of a long wick to the upside on a short trade or a few pips below the low of a long wick to the downside on a long trade. We then look for an entry knowing our stop level in advance. This allows us to manage our risk properly.

For example, if we have a long wick to the downside, and the low point of that wick is 1.3950, we know that our stop will be placed just beneath 1.3950, let’ say 1.3945. If our maximum risk on any single trade idea is 50 pips, we would need to enter the long trade at 1.3995 or lower.

By approaching the trade idea with our stop level already decided, we are in complete control of our trading. We only enter if the market allows us an entry within our pre determined risk parameters. If not, we simply look for the next opportunity.

Here is an example of a long trade on an hourly chart. Notice the long wick that forms to the downside (circle). We then look to enter on the next candle (rectangle), 15-25 pips above the low of the candle with the long wick. Our stop (white line) is located 5 pips beneath the low of the candle with the long wick. In this case, the trade triggers on the next candle.

Trading Candlesticks

Here is an example of a short trade. Notice the candle with the long wick to the upside (circled). We would then look to enter on the next candle 15-25 pips beneath the high of the candle with the long wick (rectangle). Our stop would be placed 5 pips above the high of the candle with the long wick. In this case, the entry does not trigger.

Trading Candlesticks

Next: Higher Probability Candlestick Entries (2 of 47)