What Is a Shadow?
A shadow, or a wick, is a line found on a candle in a candlestick chart that is used to indicate where the price of a stock has fluctuated relative to the opening and closing prices. Essentially, these shadows illustrate the highest and lowest prices at which a security has traded over a specific time period.
The shadow (line part) of the candlestick can be compared with its wide part, which is called the "real body."
Key Takeaways
- In a candlestick chart, the shadow (wick) is the thin parts representing the day's price action as it differs from its high and low price.
- The length and position of the shadow can help traders gauge market sentiment in a security.
- Some technical analysts believe a tall or long shadow means the stock will turn or reverse while a candlestick with virtually no wick is a sign of conviction.
Understanding Shadows
A shadow can be located either above the opening price or below the closing price. When there is a long shadow on the bottom of the candle (like that of a hammer), there is a suggestion of an increased level of buying and, depending on the pattern, potentially a bottom.
There are two main forms of analysis in trading: fundamental and technical analysis. Fundamental analysis relies on the performance of the company to provide clues and insights about the future direction of the stock. Fundamental analysts track earnings and revenue metrics.
By comparison, technical analysts concentrate on movements in price. They try to identify patterns in price action and then use these patterns to predict the direction of price in the future. Fundamental analysis helps analysts select which stocks to trade, while technical analysis tells them when to trade them. The candlestick chart is one of many tools for technical analysis.
Identifying and Using Shadows
Every candlestick formation has an open, high, low, and close. The open, high, low, and close refer to stock prices. These are the values that create the candlestick pattern. The box portion of the candlestick, which is either hollow or filled, is referred to as the body.
The lines on either end of the body are referred to as the wick or shadow, and they represent the high or low range for the time or tick period.
Candlesticks are used across various measures, such as time and ticks, and various frames such as one minute, two minutes, 1,000 ticks, or 2,000 ticks. No matter what the measure or frame, the formation and rules work the same.
Some technical analysts believe a tall or long shadow means the stock will turn or reverse. Some believe a short or lower shadow means a price rise is coming. In other words, a tall upper shadow means a downturn is coming, while a tall lower shadow means a rise is coming. A tall upper shadow occurs when the price moves during the period, but goes back down, which is a bearish signal. A tall lower shadow forms when bears push the price down, but bulls pull it back up, which leaves a long line or shadow. This is considered a bullish signal.
A candlestick with no shadow is regarded as a strong signal of conviction by either buyers or sellers, depending on whether the direction of the candle is up or down. This type of candlestick is created when a security's price action does not trade outside the range of the opening and closing prices.
Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circ*mstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.
FAQs
A shadow, or a wick, is a line found on a candle in a candlestick chart that is used to indicate where the price of a stock has fluctuated relative to the opening and closing prices. Essentially, these shadows illustrate the highest and lowest prices at which a security has traded over a specific time period.
What does the wick on a stock candle mean? ›
The wick refers to the part of the candlestick that hangs down below the body, which represents both its high and low points over a specific period. By focusing on these parts of candlesticks, you can gauge trends in financial markets, especially when candlesticks form patterns based on wicks.
What is the shadow tail of a candlestick? ›
Either the hollowed or filled-in portion of the candlestick is the body. The lines that appear above and below the body are the shadows. While both can be referred to as wicks, in most cases, the line above the body is referred to as the wick, and the line below the body is referred to as the tail.
How do you read stock wicks? ›
The top of the upper wick notes the highest price traded during the candle's period. If there isn't what, it means the open price or close price was the highest price achieved within that period. The lowest price traded is evident at the bottom of the lower wick, or shadow.
What is the candlestick of a stock price? ›
Each candlestick represents one day's worth of price data about a stock through four pieces of information: the opening price, the closing price, the high price, and the low price. The color of the central rectangle (called the real body) tells investors whether the opening price or the closing price was higher.
What does a long lower shadow candlestick mean? ›
A Long Lower Shadow candlestick during a downtrend might indicate that the downtrend is weakening, as buyers were able to lift the price from its low during the period. This could be a signal to potentially exit short positions or prepare for a long position.
What do wick numbers mean? ›
Understanding Wick Sizes
Within a series the larger the number, the larger the wick. So an ECO 14 is always bigger than an ECO 10, and an ECO 4 is always smaller than an ECO 6. But the numbers between series are not comparable. For instance, an LX-22 may or may not be bigger than an ECO 8.
What is the upper shadow and lower shadow of a candlestick? ›
Mysterious Shadows
The upper and lower shadows on Japanese candlesticks provide important clues about the trading session. Upper shadows signify the session high. Lower shadows signify the session low.
What is the most powerful candlestick pattern? ›
Top 5 Most Powerful Candlestick Patterns for Intraday Trading
- Three Line Strike: The bullish three-line strike reversal pattern carves out three black candles within a downtrend. ...
- Two Black Gapping: ...
- Three Black Crows: ...
- Evening Star: ...
- Abandoned Baby:
The long-legged doji is a candlestick that consists of long upper and lower shadows and has approximately the same opening and closing price. The pattern shows indecision and is most significant when it occurs after a strong advance or decline.
It consists of three successive candlesticks – the first is long and bearish and is followed by a smaller bullish bar that is completely engulfed by the first one. The third candle is bullish and closes above the second candle's high, suggesting a potential shift from a downtrend to an uptrend.
Are wicks important in trading? ›
It can help in making wise trading decisions. It may not seem obvious to beginners, but the wick, or shadow, is one of the most important components of candlestick charts. That is because the wick, which is a tiny line that protrudes from a candle's top or bottom, symbolises the candle's trading range.
What is shadow trading? ›
Unlike insider trading, where a person trades in the stocks of a company in which they have MNPI (material non-public information), shadow trading involves trading in an economically linked company with the MNPI of a target company (entirely different company).
How do you predict stock market using candlestick? ›
How to Analyse Candlestick Chart
- If the upper wick on a red candle is short, then it indicates that the stock opened near the high of the day.
- On the other hand, if the upper wick on a green candle is short, then it indicates that the stock closed near the high of the day.
What is a candlestick?
- The body, which represents the open-to-close range.
- The wick, or shadow, that indicates the intra-day high and low.
- The color, which reveals the direction of market movement – a green (or white) body indicates a price increase, while a red (or black) body shows a price decrease.
If you notice a long upper wick candle during an uptrend, there is a strong possibility that the price of the share will move down in the market direction. Similarly, if you notice a long lower wick candle during a downtrend, it may indicate a bullish reversal signal, and the share price may move market direction.
What is a bullish wick? ›
There are two types of long wick candlesticks: 1. Bullish Long Wick Candlestick. This candlestick pattern features a long tail below the body of the candle, typically observed after a prolonged downward trend. Its appearance often signals a potential bullish reversal, indicating a shift towards an upward price movement ...
What is the difference between bullish and bearish wicks? ›
The nature of the candlestick (body and wicks) gives you an insight into the most likely direction of the stock's price. As such, bullish patterns act as confluence for long positions, while bearish patterns show that the stock is likely to assume a downtrend.
