Wicks, A Guide on How to Cut Loss and Take Profit

Wicks, a Guide on How to Cut Loss and Take Profit By Razi Hammouda Expert Author Razi Hammouda Wicks are an interesting phenomenon in price candles formations and are a part o f every candle. Wicks can be formed on the top, bottom or both sides of a candle , and they represent the highs and lows of that candle during that period of tim e. What is important to remember after reading this article is that the wicks are b asically 'rejection' areas where the market simply rejected the prices of the wi ck. It is important to note that we are talking about the "Close" of the candle and the wicks it forms after candle closes. it is the final and permanent shape of the candle. When you see a long wick, it clearly confirms that market participants rejected the price move in that direction during that period of time, therefore, prices w eren't accepted. Whereas, if prices were accepted, then the price would remain t here for a decent amount of time and most probably close somewhere around there. And since the relationship between "when" and "what" is considered a crucial on e in business, however, its importance rises in this context, which is the marke t's rejection to the price value during that specific period of time. If we are talking about 5min charts here, then the wick formed is for only relev ant to 5 minutes charts, which are non-essential or of real impact. However, whe n you start to look at 4 hour or daily charts, then they are of great significan ce. If you think about it, day traders are only witnessing two or three 4 hour candl es during a day. So in order to have a long wick on a 4 hour chart, then forces behind the price move must be very strong and important which dominants a tradin g session. And since day traders will rarely take notice of this move because it take a long period of time to form - hence they will usually end up trading aga inst the price action trend, which basically supports the conflict of interest t heory between the retail investors and commercial brokers and somehow explains i t. It is always preferable to use the 4 hour chart when working with strategy, or w hen a long wick forms on the daily chart. Take a look at any chart, notice how every time the index reversed, it did so wi th a very long wick that tops or bottoms at the same price level. This usually g ives an idea that market participants simply did not accept prices at these leve ls, simply because the supply didn't coincide with the demand at that specific t ime frame (No participants), Therefore, sellers aggressively entered the market quickly causing the pair to drop fast which was the confirmation of the drop. If a long wick is formed on a daily chart, day traders across all time zones sho uld take note of it and really be confident about their trade going against the wick, especially given enough conviction via technical or fundamental analysis. The main reason is that market participant has rejected that price level that en tire day. With that being said, hedge managers always incorporate this approach to target range trading or breakouts, in both cases, these guidelines serve as " Risk Management" principles if applied properly. Since the wick represent the high and low price of a candle, and is an area of " rejection", then the probability of trading inside the wick in the very near fut ure is pretty low, which means that trading within daily candles' region is goin g to be less likely, and so your Stop Loss order.

It should be noted when analyzing price action that the market will usually make a second attempt on the previous rejection level (wick's tail). If you take a l ook at any currency chart, you will notice how these levels serve as support lev els. For that reason, when basing decision using the Wicks Strategy, a trader sh ould account for another test to the previous wick's tail; thus, using the tail will offer a better risk/reward opportunity. http://www.fxlords.com/forex-trading-signals/ FXLords offers the latest Forex Trading Signals delivered right to your mobile p hone in real time! With a success ratio of over 75%, our powerful Forex Trading Signals achieved mo re than 15000 green pips over 2013. Forex Trading Signals are mobile texts and email messages recommending the entry point, the stop loss, the profit levels and the trade conviction for a trade