God Bless the Japanese… They’ve given us some great inventions, like DVDs and the Nintendo. They’ve also given us some not-so-great ones like Karaoke… Thankfully somewhere in the middle of these is an invention that changed the financial markets forever: Japanese Candlestick Charts!
I know candlestick formations and patterns can be confusing, but don’t worry. You don’t need to memorize dozens of candle patterns with hard-to-pronounce Japanese names in order to trade! All we need are three basic candle concepts… Long Wicked Candles, Inside Bars, and Outside Bars.
Long Wicked Candles
Long Wicked Candles (LWC) are just what they sound like, candles with long wicks. I’ve circled some LWC’s on the chart below. Notice that almost every time price changes direction we see a LWC? Long wicks pointing in the direction of a price movement can signal that the movement is coming to an end and price will be changing direction.
Now I know what you’re thinking… “But Phil, there are long wicked candles all over that chart, and they aren’t just in the places where price is reversing!”
You’re right, but remember we aren’t basing trades off these LWC’s by themselves. They are simply one tool among many to help us find price reversals. You should never take a trade based off a LWC by itself! We need to use them along with all the other tools we’re going to learn later.
Speaking of those other tools, let’s move on and learn about Inside & Outside Bars.