Wicks – How to Cut Loss and Take Profit

Wicks are an interesting phenomenon in price candles formations and are a part of every candle, and an important variable in determining the Cut Loss and Take Profit points. 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 time.
What is important to remember after reading this article is that the wicks are basically ‘rejection’ areas where the market simply rejected the prices of the wick. 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 we see a long wick, it clearly confirms that the market (or participants) rejected the price move compression during that period of time, therefore, prices weren’t accepted. On the other hand, if prices were accepted, then the price would remain there for a decent amount of time and most probable close somewhere around there. And since the relationship between “when” and “what is considered a must in business, but its importance rises in this context, which is the market’s rejection to the price value during that specific period of time.






If we are talking about 5min charts, then the wick formed is for only relevant to 5 minutes charts, which are non-essential or of real impact. However, when we start to look at 4 hour or daily charts, then they are of great significance.
If you think about it, day traders are only witnessing two or three 4 hour candles 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. 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 against the price action trend. This basically supports the conflict of interest theory between the retail investors and commercial brokers.
FXLORDS recommends using the 4 hour chart when working with strategy, or when a long wick forms on the daily chart.
Take a look at the example below, notice how every time this pair reversed, it did so with a very long wick and on the same price level. This was telling us that the market simply did not accept prices at these levels, simply because the move didn’t coincide with the time frame (No participants), Therefore, sellers aggressively entered the market quickly causing the pair to drop fast which the confirmation of the drop.




If a long wick is formed on a daily chart, day traders across all time zones should 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 the market has rejected that price level that entire day. With that being said, there’s also ways to 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 is pretty low, which means that trading within daily candles’ region is going 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). Notice in the example below how these levels served as support levels. For that reason, when trading wicks, we should account for another test to the previous wick’s tail; thus, using the tail will offer a better risk/reward opportunity.

US Dollar Stability – For How Long?

For decades now the US dollar has been the international currency against which many other currencies are bench-marked but with China looking to become the leading world trading nation and the US economy struggling to get a firm grip, some are concerned over US dollar stability and whether the dollar's exalted position will remain much longer.

The greenback is the world's most commonly traded currency and it's the currency that gold, oil and many other commodities are priced in but something is happening that threatens US dollar stability which means its position may yet be threatened.

America's trade and budget deficits have led to large amounts of borrowing such that many countries, in particular Asian ones, hold trillions of dollars of US debt.

Over the last twelve months they have seen the value of that debt slowly decline as other economies have emerged from the recession in a stronger position than the US. A continued decline in the dollar's value is likely to lead some of the holders of US debt to consider selling and, as a result, further undermine US dollar stability.

We've seen this talk before and minds have recently been cast back to 2006 when the dollar was seriously under pressure from a rampant trade deficit that was being ignored by many in authority. At the time the authorities would wave the implications away with the comment that it was America they were talking about, not some third world country where such economic problems would amount to a catastrophe.

The trade deficit has reduced but the budget deficit and the national debt has increased. Problems have been resolved but others have risen to take their place.

Many say that the dollar cannot possible fall from grace but then that was once said about sterling.

Looking at long term trends, the dollar is on a downward path against the pound and the euro. Soon, if that trend persists, those with power will be asking serious questions and who knows what the answers might be?

In the United States, the American arena will witness many economic events this week, although U.S. markets are closed today celebrating the Presidents Day holiday, while key economic data will be released throughout the week to reflect the health of the largest economy in the world, including inflation data through the CPI and PPI readings, the FOMC meeting, also the U.S. companies will continue to release the results of its operations during the fourth quarter of the previous year 2013.

Ichimoku Kinko Hyo

This indicator was developed by Ichimoku Kinko Hyo to characterize the market trend, support and resistance levels, and generate buy and sell signals for a particular financial instrument. This indicator works best on daily and weekly price charts.

The Cloud (Kumo) is designed to represent different levels of support and resistance. Hosada (the inventor or this indicator) realized that support and resistance levels cannot remain constant, and because market participants have different levels of risk and return, therefore we must use “moving” lines along the price “moves”. The cloud is composed of two (Senkou) stretched lines, I and II, which have been displayed in a futuristic time frame (pushing them forward on the price chart) to form the shaded area between the two line.



The general theory of this indicator states that if the price is above the cloud, the general trend is to the upside, and if it was under the cloud, the general trend is to the downside. If the price was between the two (Senkou) lines, the cloud will change to another color and the Senkou lines will represent the support and resistance levels and the instrument should be traded on the assumption that prices are range trading (within the cloud), and the trend is not specified.

In addition to (Senkou), there are also three moving average curves; the first is (Tenkan-sen), which are the average of the sum of the maximum and minimum price within this period, divided by two, and (Kijun-sen), which works as (MACD) signals when it intersects with (Tenkan-sen) , and (Chinkou) which is the representation of the price today displayed 26 periods ago, which is actually the reason behind this indicator’s strength. When (Tenkan-sen) penetrates (Kijun-sen) from the bottom to the top, it is a signal to buy. If it is from the top to bottom, then it is a sell signal. There are several other interpretations for the Ichimoku Kinko Hyo indicator, and are as follows:

- When the price is higher than the cloud, the upper boundary of the cloud represents the first support level, and the lower part is a second support level, and vice versa, when the price is below the cloud, the lower part of the cloud represents the first resistance level, and the top level represents the second one.

- If the (Chinkou) curve broke through the price curve from the bottom to the top, then it’s a signal to buy. If the (Chinkou) curve broke the price curve from the top to bottom, then it is a sell signal.

- (Kijun-sen) is a market directional indicator. If the price was higher than the indicator, then prices will probably continue to rise. When price breaks through this curve, it is likely that the trend has changed.

- (Tenkan-sen) is a market movement’s indicator. If this line increases or decreases, then a trend exists, and when it is horizontal, it means that the market is trading within a range.