Short Line Candle: Meaning in Technical Analysis

What Is a Short Line Candle?

Short line candles—also known as short candlesare candles on a candlestick chart that have a short real body. This one-bar pattern occurs when there is only a small difference between the opening price and the closing price over a given period. The length of the upper and lower shadows—representing the high and low for the period—do not make a difference in defining a short line candle.

In other words, a short line candle may have a wide or narrow high and low range for the period but will always have a narrow open and close range.

Key Takeaways

  • Short-lines, or short candles, are candlesticks that have short bodies.
  • This short-body shape indicates that the open and close prices of the security were quite close to another.
  • Short-body candles may indicate a period of consolidation in a stock or other asset, but their interpretation will vary based on what other price action has preceded and follows it.
Short Line Candle
Image by Julie Bang © Investopedia 2020

Understanding Short Line Candles

Candlestick charts are often used to assess positive or negative market sentiment at a glance. Short line candles generally signal that the market is consolidating with little price movement. But they may have different meanings, depending on where they occur in a price chart. For example, a short line candle may take the form of a hammer in which there is a lower tail with no upper tail. This is a bullish reversal pattern and could indicate the end of a downtrend. On the other hand, a series of short line candles could simply suggest indecision and provide traders with few hints about where future prices are headed.

A series of short line candles with narrow high and low range indicates a period of low volatility. When these candles are positioned near broader support or resistance, the cluster of candles often predicts the onset of high volatility, i.e. a series of wider range and directional candles consistent with a developing trend. While these clusters tend to be bullish near resistance and bearish near support, their directional value is limited. However, since they predict that high volatility will replace low volatility, traders can apply a basket of potentially profitable strategies.

For example, buying a security in the middle of a cluster at resistance will permit a tight stop loss due to the narrow range candles and even narrower real bodies. Reward to risk is favorable in this scenario because, if correct, the trader benefits from the new uptrend and if wrong, the incurred loss is relatively small. The cluster also benefits option traders who execute non-directional strategies that will generate profits from trend movement in either direction. This is possible due to the assumption that a high volatility directional move will result from the non-directional low volatility cluster.

Short Line Candles in Practice

A hammer is a short-line price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies within the period to close near opening price. This pattern forms a hammer-shaped candlestick, in which the lower shadow is at least twice the size of the real body. The body of the candlestick represents the difference between the open and closing prices, while the shadow shows the high and low prices for the period.

The hanging man and the hammer candlesticks look identical. The only difference is the context. The hammer is a bottoming pattern that forms after a price decline. The hammer-shape shows strong selling during the period, but by the close the buyers have regained control. This signals a possible bottom is near and the price could start heading higher if confirmed by upward movement on the following candle. The hanging man occurs after a price advance and warns of potentially lower prices to come.

The inverted hammer and the shooting star look exactly the same. They both have long upper shadows and small real bodies near the low of the candle, with little or no lower shadow. The difference is context. A shooting star occurs after a price advance and marks a potential turning point lower. An inverted hammer occurs after a price decline and marks a potential turning point higher.

doji is another type of candlestick with a small real body. A doji signifies indecision because it is has both an upper and lower shadow. Dojis may signal a price reversal or trend continuation, depending on the confirmation that follows This differs from the hammer which occurs after a price decline, signals a potential upside reversal (if followed by confirmation), and only has a long lower shadow.

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