To refine your own method of trading, as a trader, experienced or not, you should always adopt the attitude of a scientist or an explorer. This is even more obvious when you wipe a loss or series of losses in your operation. A return to do work that is no longer necessary, even mandatory, to understand and correct mistakes.
This is often an opportunity to consider a new approach, or to test new tools that enable you to improve. So today, add to your toolbox Japanese candlestick characteristic: the long candle wick, whose operation will be very beneficial.
The long candle wick
Chandeliers long wick, there are several kinds. But there are two that concern us today:
* The “Hammer”, which draws on the bottom of a downward trend;
* And “shooting star” that emerges on top of upside movement.
Both candlesticks have the particularity to have a lock two to three times larger than the body (full) of the candlestick. If I spoke of earlier long-wick candle is that I give more importance to the shape of the chandelier, the name itself. For every candle wick long show, at some point, the camp of the dominated (buyers or sellers depending on the direction of movement in progress) against launching a violent attack against their opponents to stop the aggression of which they are the object.
The charge (against attack) is often so sudden and so violent, that abusers are psychologically scarred and stop their domination. This kind of load can occur anywhere. But when it occurs at or near a level of support or resistance, the probability that the movement is reversed current is very high. Car, near the level of support and resistance, the camp is dominated support and reinforcement of new troops – those who already represent the level to which the courses are close. So much for metaphor. Let us now see how to intervene and operate this type of graphic.
Firstly, detect the highest levels
Identify levels that are solids, which are unlikely to be broken in the first test. These are medium-term levels, the levels on which there were large volumes of transactions, or levels that have already stopped the ongoing violence in the past.
All these levels are usually very interesting places to use when candlesticks with long wick are emerging.
Secondly, use your preferred indicator
Support your analysis of the graphic using a technical indicator that you know well, the MACD for example.
For the MACD, see if the indicator is showing signs of weakness when approaching the current level, or if there is a difference in training. For oscillators, if the indicator is already in oversold zone, or overbought, when prices are approaching a level.
Third: Wait a bit and … enter into play!
Wait for the reaction of course. If you see there is a candlestick with a long wick near or on the level, get ready to intervene.
For my part, I am eight times out of 10 the next day. And when I recommend including warrants, in my service. Over the next opening will be far above (in case of bullish reversal), or far below (in case of rollover Bear) the closing price the previous day, plus the reversal signal will be strong. [Editor's note: As you know, at that time the course and speed when you are positioned on a warrant, the leverage is enormous. It is an ideal time to make double digit gains, quickly. If you want you also apply this strategy, read our special report]
In principle, the courts should not return to the above (or below) the highest (or lowest) of the meeting the previous day, ie the long end of the wick. Take into account that the day after the closing will be on the rise (for a bullish reversal) or decrease (for a reversal in the decline), compared to the closing of long-wick candle.
When these conditions are met, the likelihood of success of your trade will be higher.