What is a shadow candlestick pattern? Imagine you’re drawing a stick figure. The stick figure’s head and body represent the main part of the candlestick, while the arms and legs are like shadows. In trading, a candlestick tells us about how a stock or currency moved during a certain time, like an hour or a day. The shadows show the highest and lowest prices that were reached during that time.

Types of Shadow Candlestick Pattern

Candlesticks have two main shadows:

• Upper Shadow: This is like the stick figure’s arms, reaching up high. It shows the highest price that was reached before sellers took control and the price started to go down.
• Lower Shadow: This is like the stick figure’s legs, pointing down. It shows the lowest price before buyers stepped in and pushed the price back up.

Reading Information On The Market Based On This Pattern

Shadows can tell us a lot about what’s going on in the market:

• Long Shadows: If the shadows are long, it means there was a lot of action. The price went up or down a lot before settling.
• Short Shadows: If the shadows are short, it means the price didn’t move too much, and things were pretty calm.

Reading Shadow in Trading

When you see a candlestick, look at the shadows to help you understand what might happen next:

• Long Lower Shadow: This could mean buyers are starting to take control. It’s like when someone almost falls but catches themselves just in time. In trading, it might be a sign that prices could go up.
• Long Upper Shadow: This could mean sellers are taking over, and the price might go down soon. It’s like someone reaching up high but then pulling their hand back down.

Common Patterns with Shadow

• Hammer: Imagine a hammer with a long handle (the lower shadow) and a small head (the body). This pattern might mean prices are going to go up.
• Shooting Star: This looks like a star shooting across the sky, with a long upper shadow and a small body. It could mean prices are about to go down.
• Doji: A Doji looks like a cross, with almost nobody and shadows on both sides. This means the market is unsure about what to do next and might change direction.

Using Shadow Candlestick Pattern in Forex Trading

If you’re trading currencies, understanding shadows can help you decide when to buy or sell.

• Buying Signal: If you see a long lower shadow after prices have been falling, it could mean that the price might start going up. This might be a good time to buy.
• Selling Signal: If you see a long upper shadow after prices have been rising, it could mean that the price might start going down. This might be a good time to sell.

Real Life Example

Let’s say you’re watching the EUR/USD currency pair, and you notice a candlestick with a long lower shadow after a period where the price has been falling. This might mean that the sellers are losing control, and the buyers are getting stronger. It could be a sign that the price is about to go up, and you might consider buying.

Understanding these simple patterns can help you make smarter decisions in trading. Just like reading clues in a story, reading candlestick shadows can give you hints about what might happen next in the market.