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Long Wicks

Long Wicks

2010-03-10 23:24:00
Richard Krivo, Trading Instructor
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 Instructor's Response:

 
Sure...
 
Take a look at the 1 hour chart of the GBPAUD pair below.
 
Since this pair is in a strong downtrend on the Daily chart, we know that we would only be looking for opportunities to sell the pair.  A trader can then go down to a lower time frame chart to find an opportunity to short the pair in the direction of the Daily trend.
 
Note on the chart how the pair has recently moved down and then, over the last four candles, a retracement has taken place.  We can see on each of those candles that there are long wicks on the top of each of them.  The long wick on top shows us that buyers tried to push the price up in each instance and they succeeded in getting the price as far as the top of the wick but could not sustain that level...that's what created the long upside wick.  We also can see that one of those candles, the red one, is a Shooting Star which is a bearish reversal candle.  So...putting all this together, we come up with our trading plan.
 
Should price action close below the support level on the chart, we would sell the pair at that point with a stop just above the highest wick of the retracement...the wick of the Shooting Star candle.  The advanage of the long wicks is that they provide us with an excellent reference point for our stop placement. 
 
chart 3 10 10
 

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