Long candlestick shadows – a signal to enter the market
Candlestick analysis can be both the basis of a trading strategy and a useful addition to indicator readings or graphical market analysis. Knowledge of candlestick patterns allows you to define better signals on the price chart. But sometimes even one candle can tell about the market situation. If you look at the chart, you can see that long candlestick shadows often appear in the market. They’re also called “tails.” What do they talk about and how can they be used effectively in their trading? That’s what I’m talking about in today’s article.
Candle with a long “tail” as a signal to enter the market
Long candlestick shadows can be signals that indicate a possible change in the direction of price movement. However, the appearance of a candle with a long “tail” can only be assessed in conjunction with other factors. And the main one is a strong level of support or resistance. If a candlestick with a long shadow is formed near this level, the probability of a gap between the candlestick and the candlestick is high enough. The trading signal may also appear in case of formation of a candlestick with a “tail” when the price approaches the moving average.
And now let’s look at examples.
Candlesticks with long shadows touch the moving average. This may indicate the strength of the bears and the probable continuation of the downside movement.
A here is an example of the formation of a candle with a long tail near a strong resistance level:
In this case, such a candle can be considered as a signal of market reversal. Which, as we can see, is what happened.
Ignore the fact that not all long candlestick shadows can be important in the analysis of the market situation. Such a candle must necessarily be based on an important level. If its formation coincides with the prevailing trend in the market, this fact increases the signal for opening a trade order. The best way to enter the market is to have several confirmations of the chosen direction of opening a trade. Except for the levels I have written about above, these may be indicator readings or the release of some important news that determines the further price movement. In any case, the possible use of candles with long tails should be known and remembered. First of all, it is necessary to look at the history of the rate movement of the traded currency pair on the chart and evaluate the role of such candlesticks in the market analysis.