A candlestick with no shadows 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.
Candlesticks are charts used by traders to calculate the potential price movement of securities by assessing previous patterns. Candlesticks show four price points—open, close, high, and low—throughout a certain time period specified by the trader.
- Candlestick charting is used by technical traders for charting short-term trends of 10 sessions or less.
- While bar charts look at a security's closing price two days in a row, candlestick charts look at the opening and closing price on a single day.
- A shadow, or wick, is a small line at the top or bottom of each candle that shows the day's highs and lows.
- A candlestick with no shadow means the price at the open and close are equal to the high and low prices during the session.
- This type of candlestick is indicative of either a bullish or bearish trend, depending on whether the candle is found in an uptrend or downtrend.
Candlesticks and Shadows
Generally, when looking at a candlestick chart, traders will notice a small vertical line placed at the top or bottom of each candle. This line is known as the wick or shadow, and it represents the given day's high or low. This shadow is omitted when the open and close are equal to the high and low. Technical traders have come to call a long-bodied candle with no upper or lower shadow a marubozo, which is Japanese for "close-cropped."
When this type of candle is found in an uptrend, it is used to signal that the bulls are aggressively buying the asset and it suggests that the momentum may continue upward. The bullish marubozo candle (open equals low, high equals close) can signal a reversal when it is found at the end of a downtrend because it shows that the sentiment has changed and that the bulls are likely to continue pushing the asset higher. On the other hand, a bearish marubozo found in a downtrend (open equals high, low equals close) can signal further selling pressure, especially if found at the top of an uptrend.
A marubozo is a long-bodied candlestick with no shadow. Marubozo means "close-cropped" in Japanese.
Tracking Openings and Closings
Candlestick charting was developed by the Japanese and it is commonly used today in technical trading. It's a very complex system to understand, but it's extremely useful in charting short-term trends—10 trading sessions or fewer. They differ from the typical bar charts in their relationship between pricing at open and close. The typical bar chart focuses on the relationship between the closing price on two consecutive days, while the candlestick chart focuses on the opening and closing price on a single trading day.
Keep in mind, however, that candlestick charts only represent the relationship between the open and close on a single trading day; they don't give you insight into the events that transpired throughout the trading day itself. There is no insight on volatility. For example, a long white candlestick would suggest that prices steadily advanced throughout the trading session, but in fact, there may have been one or two major declines, suggesting a less bullish situation than a session of sustained buying pressure.