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Placing Stops Based on Long Wicks

Placing Stops Based on Long Wicks

Richard Krivo, Trading Instructor

Instructor's Response:

Sure...

Take a look at the chart below...

This USDJPY pair is in a downtrend on the Daily chart so we would be looking for opportunities to short the pair on this 1 hour chart. That being said, note the two long wicked candles above which I have placed stops.

A long wick indicates that price traded up to that level (the top of the wick) but the move could not be sustained. Potentially, that will indicate that a move to the downside may take place since the bulls/buyers could not sustain that move to the upside and the bears/sellers won out. The wick provides an excellent spot to place a stop as price tested that level recently and could not trade above it . 

In a buying scenario, the trader would look for long wicks below the bodies of the candles and the stops would be placed under the long wicks in that case.

chart 11 23 09

 

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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