You cannot separate the use of Shadow from the candlesticks style. Regardless of its characteristics, Shadow will be a mirror of prices to determine the power of buyers or sellers who always dominate. Without the Shadow, the strength of the trend is getting stronger and the pressure of the trend will not stop. Why so?
Definition of Shadow
According to Investopedia, a shadow location is either above the opening price or below the closing price.. Based on its position, there are two types of shadows in candlestick anatomy, that is Upper Shadow and Lower Shadow.
The Upper Shadow tip marks the highest price. While the Lower Shadow tip represents the lowest price in a given period. When we observe the various forms of candlesticks on the chart, it appears that the length of the Upper Shadow and Lower Shadow is not always the same.
In fact, some candlesticks have absolutely no Upper Shadow, Lower Shadow, or both. The principle behind these differences is rooted in market behavior on which candlesticks are formed.
How can the Forex Shadow Candle Form?
Forex Shadow Candle formed due to changes in market sentiment. If we see a candlestick that is still in the process of formation (not yet closed), then the Upper Shadow is usually realized after the buyers try to push the price up. But, the price then moves down again and passes the opening level. This condition can be caused by the seller’s push or weakening the buyer’s power. Price movements that had touched a high level will leave a long line above the candlestick. Then, that is what we see as the Upper Shadow.
The Meaning Behind the Size of the Forex Shadow Candle
There is a buyer pull when the price falls (which causes Lower Shadow), or the seller pulls when the price rises (which causes the Upper Shadow), caused by changes in market sentiment. Therefore, the longer the Shadow Forexcreated, the stronger the changes in market sentiment that occur. This understanding is also in tune with the study of the strength of increasingly diminishing trends.
The longer Lower Shadow generally reflects the weakening Downtrend strength and vice versa for candlesticks with Upper Shadow. If the long lower shadow in a candlestick not matched by a long upper shadow, then this can be one indication of a reversal towards the upside. While a long upper shadow that is not accompanied by a long lower shadow is also often one of the reversal signals towards the downside.
Shadow Candle Forex Cannot Be A Single Trading Signal
Even though you can use it as a means of reading market sentiment, you cannot utilize Shadow Candles forex cannot be as the sole transmitter of trading signals. However, candlesticks not only form the highest and lowest prices. There are still opening and closing prices that make up the Body candle. Besides, it is also determining whether the candlestick is Bullish or Bearish.
Long or short Shadow candles are usually interpreted together with a large body candle, and whether the candle is closed lower (Bearish) or higher (Bullish) than the opening price. This variety of parameters creates many candlestick patterns with various meanings and signals to understand.
What are the uses of Forex Shadow Candle?
Even though it cannot function as the sole determinant of the next price direction signal, Shadow candles that reflect the highest and lowest prices in a given period can be used for other technical analysis purposes, such as:
- A pedestal of withdrawal Swing Price for drawing Fibonacci.
- The basis for withdrawing Trendline and Trend Channel.
- One of the closest Stop Loss or Take Profit parameters.
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