What’s a Candlestick Shadow?


A candlestick shadow represents the extremes of the place the value visited through the lifetime of a candlestick on a chart earlier than closing at its final value.

On a bullish candlestick, the shadows signify the distinction between the closing value and the excessive value (higher shadow), and on a bearish candlestick the shadow represents the distinction between the open value and the low value (decrease shadow). 

The Fundamentals of How Candlestick Charts Work

If that’s in any respect complicated, let’s go over the fundamental definition of a candlestick. A candlestick on a chart appears like the next:

It represents the open, excessive, low, and shutting costs over the lifetime of a candlestick, relying on the chart setting.

For instance, for those who’re viewing a each day chart, every candlestick represents in the future of value motion. On this case, every level on a candlestick would signify the open, excessive, low, and shutting costs all through in the future of buying and selling. 

Let’s take a look at a real-life instance:

Above is a each day chart of Apple (AAPL) and we’ve highlighted a person candlestick with a pink arrow above it. Let’s break down every factor of this candlestick and the possibly complicated nature of candlestick charts ought to turn into clear. 

We’ll zoom on on this candlestick to get a greater look: 

The above candlestick, like all candlesticks, has two major components: the physique and the shadow.

The physique is the broad, stable a part of the candlestick. This represents two value factors: the open and shut. On this case, as a result of we’re taking a look at a bullish candlestick, the decrease a part of the physique is represents the opening value, or the primary value traded at 9:30am EST on that day, whereas the highest a part of the physique represents the closing value, or the final value traded at 4:00pm EST on that day. 

Visually represented:

Now to the shadow, the topic of this text. The shadow are these skinny traces coming from the highest and backside of the physique. You’ll additionally hear these known as “wicks,” as they appear like the wick of a candle.

The shadows signify all value motion that occurred outdoors of the vary between the opening and shutting value, or the excessive and low for the day.

Let’s spotlight the wicks within the above instance:

You may see some logic forming right here. I feel it turns into clear while you go “inside” the candlestick, in different phrases, go to a decrease timeframe and see how today’s value motion unfolded on an intraday timeframe. 

Every candlestick on the above chart represents quarter-hour of buying and selling on the each day candlestick we’ve been analyzing for many of this text. Seeing issues represented like this may make extra sense to you.

I’ll shade the realm between the opening and shutting costs which represents the candlestick physique. The zone above the shaded space could be the higher wick, whereas the decrease zone could be the decrease wick: 

Bullish vs Bearish Candlesticks

One probably complicated issue with candlestick charts is that bullish and bearish candlesticks are formulated in a different way. Bullish candlesticks are sometimes inexperienced and bearish pink, nevertheless some charts will signify them utilizing a mixture of totally different colours like black and white, inexperienced and purple, and so forth. 

When the closing value is greater than the opening value, that could be a bullish candlestick. On a candlestick chart, these shall be color-coded, so the charting platform will do that be just right for you. 

When the closing value is decrease than the opening value, that could be a bearish candlestick. The sometimes pink shade coding will determine it as a bearish candlestick and also you’ll know that the upper level of the physique is the open and the decrease level is the shut. 

We’ll refer again to this easy chart once more: 

Backside Line

Candlestick charting is a quite simple idea however initially will be fairly complicated.

The important thing level to recollect is that every candlestick (bar) tells the story of what occurred in buying and selling over the lifetime of the bar by supplying you with 4 key value factors: the very best value the inventory traded throughout that interval (say, quarter-hour for instance), the bottom value the inventory traded at for that interval, the primary or opening value, and the final or closing value the inventory traded at throughout that interval.



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