1. The tail or wick of the candle should be at least two, or three times the length of the body of the candle. If the wick, or tail is not two, or three times the length of the candle body then the odds diminish that the pattern will actually work. The body of the topping tail candle should also close in the lower 30.0 percentile of the entire candle. The opposite is true for a bottoming tail candle.
2. Traders should note that the best topping tails will occur at tops or highs of a chart. The opposite is true for bottoming tails, they will occur at bottoms, or lows of a chart. When you get tail candles occurring in the middle of a trading range these are just tests of certain price points and not a true sign of a top or bottom in an equity.
3. The best topping and bottoming tails should have much heavier than normal volume behind them. This is probably one of the most important factors that most traders overlook. For example, if the daily chart of a particular equity averages 1.0 million shares a day then the tail candle should generally have double or triple that amount of volume to be highly effective. Look at the chart below and see how this beautiful topping tail meets all of the required criteria.
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Nick Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
