Interpreting Candlestick Shadows

One of the simplest observations that can be made from a common candlestick chart is the size of the shadows of each candlestick. The shadows indicate a change in sentiment, as they are formed from the high and low in a session between a certain open and close. A long upper shadow occurs when buyers dominate during the first part of the session, followed by sellers driving the price back down again. They are often referred to as bearish shadows, as it is a classic indication that a market might be reached a top. Traders can use this signal to exit their positions or take a short position. The opposite is true for long lower shadows, often referred to as bullish shadows because they could signal a potential area of support. Traders might find this a good moment to enter in a position. The longer the one shadow compared to the other, the stronger the signal.

Candle Long Shadows