These are the five important candlesticks observations that give us an idea of what’s really happening with a price under the hood.
1. Wick Length
Candlesticks, as we know, they’ve got a body and a wick with a tail. So it’s important to know how long the wick is. Obviously, the longer the wick, longer the indecision has been on the call and the bigger move is after the extension. So if that was a daily candle, it means that we’ve come to a low here at some point. But whatever reason, we’ve pushed back up and we’ve closed, assuming that’s our close if it’s a red candle as you can see on the picture.
The longer that wick, the further the price has gone and come back. That’s useful information. If we’re getting long wicks all the time and that means that its indecision has changed and has moved quite a lot in a direction against that initial pulse. Which might indicate a turning point or a change in sentiment midday, midweek or whatever it may be that’s worth looking at the wick length.
2. The Ratio of Wicks to Tails
For wicks, as you can see on this picture in this example to be upside and tails to be a downside. The whole point here is that if you have got a lot of let’s say moves to the upside that failed in the middle of the candle, that could be construed as bearish.
If you see a lot of times it’s pushing up on the day and it’s closing at lows, pushing up again and then closing at lows, that’s a bearish pattern as opposed to all the way around, pushing down the day and closing at highs. So if you’ve got a ratio, we’ve got far more wicks than tails potentially. Again, you got to put this all in context, but potentially that’s a bit more of a bearish path.
3. Body Position
The body is obviously the meat of the candlestick of the open and close. Where is that? You’ve got a couple of options.
So we’ve got a body position right in the middle of the range, just like a cave where we can extend the highs or we extend into the lows. You can reject both sides and we’re not closing some in the middle. We open and close some in the middle and we try both sides and no one really will win the battle. It’s a bit nothing going on, especially with the first candlestick that you can see on the picture.
What about the second one? This one is much better. Before, we were talking about similar candlestick, we were talking about the wick length. And now we are talking about the position of the body. The body’s right at the top, because wick length could still be the same regardless of the size of the body. Wick could still end up going the same depth lower. The range would be wider but you would still have the same wick length.
But the body is right at the top, that could indicate some strength, potentially. The fact that we did push to lows and fail, push back up, same as the body’s massive, that would indicate perhaps a trend. They opened at lows, closed to highs, opened to highs, closed at the low, solid trend. A good solid reason to potentially take a trade in the direction of the trend the next day, depending on the position.
4. Size of the Body
The size of it, is it relatively big compared to the other candlesticks as well? Is a relatively big compared to the wick? Is it relatively big compared to the prior day, the previous week? Whatever it may be, the size of the body, very similar, of course, to the position. But it depends a lot. If it’s opening at lows, closing at highs, it’s a lot different from opening at lows, pushing highs, failing and closing at the midpoint, distinct different type of trade environment.
5. Body to Wick Ratio
If we look at the body size and the wick size, it’s similar to the wick length, but it’s the ratio for constantly getting all the time. Indecision, indecision, indecision. You’re going to find that the body is often half of the wick because most the time you get that kind of scenario where opens the highs, pushes down to lows, comes back up, tries to reclaim and can’t quite.
You get that 50 percent of the whole range. Or is the candlestick body whole of the range and the wick looks like a little tiny bit? In other words, it’s just been a range extension day and the wicks just been a little bit of noise towards the end of the day, whatever it is very small wick.
Super important are two completely different scenarios on how to get a picture of the type of environment you’re in. You start to look at all these attributes for your candlesticks. You start to build out a bigger picture. Who’s in control? Are they truly in control? If you’ve got a couple of solid candlesticks in a row, what’re the general conditions? I’ve got a lot of wicks as opposed to bodies. What about If we have a lot of bodies and no wicks and there’s a lot of distinct movement and supply-demand imbalance?
So multiple different openings appear when we start to analyze this. And I think a lot of us do this subconsciously, but sometimes it’s worth to ask yourself what are you really looking at? What is the actual point?