What is a 'Shadow'

A shadow, or a wick, is a line found on a candle in a candlestick chart that is used to indicate where the price of a stock has fluctuated relative to the opening and closing prices. Essentially, these shadows illustrate the highest and lowest prices at which a security has traded over a specific time period.

BREAKING DOWN 'Shadow'

A shadow can be located either above the opening price or below the closing price. When there is a long shadow on the bottom of the candle (like that of a hammer), there is a suggestion of an increased level of buying and, depending on the pattern, potentially a bottom.

There are two main forms of analysis in trading: fundamental and technical analysis. Fundamental analysis relies on the performance of the company to provide clues and insights about the future direction of the stock. Fundamental analysts track earnings and revenue metrics.

By comparison, technical analysts concentrate on movements in price. They try to identify patterns in price action and then use these patterns to predict the direction of price in the future. Fundamental analysis helps analysts select which stocks to trade, while technical analysis tells them when to trade it. The candlestick chart is one of many tools for technical analysis.

Identifying and Using the Shadow

Every candlestick formation has an open, high, low and close. The open, high, low and close refers to stock prices. These are the values that create the candlestick pattern. The box portion of the candlestick, which is either hollow or filled, is referred to as the body.

The lines on either end of the body are referred to as the wick or shadow, and they represent the high or low range for the time or tick period.

Candlesticks are used across various measures, such as time and ticks, and various frames such as one minute, two minutes, 1,000 ticks or 2,000 ticks. No matter what the measure or frame, the formation and rules work the same.

Some technical analysts believe a tall or long shadow means the stock will turn or reverse. Some believe a short or lower shadow means a price rise is coming. In other words, a tall upper shadow means a downturn is coming, while a tall lower shadow means a rise is coming.

A tall upper shadow occurs when the price moves during the period, but goes back down, which is a bearish signal. A tall lower shadow forms when bears push the price down, but bulls pull it back up, which leaves a long line or shadow. This is considered a bullish signal.

RELATED TERMS
  1. Shadowing

    Shadowing is an informal way of learning what it is like to perform ...
  2. Bearish Belt Hold

    A candlestick pattern that forms during an upward trend. This ...
  3. Shadow Rating

    A shadow rating is an unofficial rating given to a bond or an ...
  4. Shadow Banking System

    A shadow banking system refers to the unregulated financial intermediaries ...
  5. Shadow Inventory

    Shadow inventory refers to real estate that owners plan to sell ...
  6. Shadow Pricing

    Shadow pricing is the assignment of dollar values to non-marketed ...
Related Articles
  1. Investing

    Countries With The Largest Shadow Markets

    These nations have the largest informal economies relative to their respective GDPs.
  2. Trading

    Understanding the 'Hanging Man' Candlestick Pattern

    A hanging man is a candlestick pattern that hints at the reversal of an uptrend. Here's how to trade it.
  3. Trading

    Two Candlestick Patterns Predicting A Bottom

    This article tries to find some bottoms in four stocks using two different candlestick patterns.
  4. Trading

    Heikin-Ashi: A Better Candlestick

    The Heikin-Ashi technique modifies the open-high-low-close series that most candlestick charts use, thus making trends easier to spot.
  5. Trading

    Candlesticks Light The Way To Logical Trading

    Crowd psychology is the reason this technique works. Find out how to make it work for you.
  6. Trading

    Candlesticks and Oscillators for Successful Swing Trades

    Take advantage of short-term price moves by pinpointing reversals using candlesticks and oscillators.
  7. Trading

    Significant Marubozu Candlesticks

    This candlestick pattern can signal a big move, especially if it occurs in the right context. With the context right and pattern present, some big name stocks could see a major move over the ...
  8. Investing

    Tales From The Trenches: Location Is Everything

    When a candle pattern re-occurs near a moving average, it may indicate future support or resistance.
  9. Trading

    Bullish Engulfing Candle In An Uptrend

    These four stocks are in uptrends that recently had a bullish engulfing candlestick pattern.
RELATED FAQS
  1. What Do You Call a Candlestick With No Shadows?

    A candlestick with no shadow is seen as a strong signal of conviction by either buyers or sellers. Read Answer >>
  2. What are the differences between a bar chart and candle sticks?

    Explore the difference between bar and candlestick charts. Learn how technical analysts use charts in the analysis of supply ... Read Answer >>
  3. What do the different colored candlesticks mean?

    A typical candlestick chart is composed of a series of bars, known as candles, which vary in height and color. Read Answer >>
  4. What does the three white soldiers pattern mean?

    Understand the basics of the three white soldiers candlestick pattern and how this bullish reversal signal is interpreted ... Read Answer >>
  5. What does the three black crows pattern mean?

    Learn the basics of the three black crows pattern and how analysts and traders interpret this bearish reversal pattern when ... Read Answer >>
  6. What are the most common Bearish patterns used by traders?

    Discover some of the commonly used bearish chart patterns that traders identify as potential market turning points to the ... Read Answer >>
Trading Center