Shadow

In forex trading, the term “shadow” is often used to refer to the upper or lower wick of a candlestick. Candlestick charts are a popular type of chart used in technical analysis to represent price movements over a specific time period.

A candlestick consists of a rectangular body and two thin lines extending from the top and bottom, which are called shadows or wicks. The body represents the opening and closing prices, while the shadows represent the high and low prices reached during that time period.

The upper shadow, also known as the upper wick, is the thin line extending from the top of the body. It represents the highest price reached during the time period. Conversely, the lower shadow, or lower wick, is the thin line extending from the bottom of the body and represents the lowest price reached.

Shadows provide valuable information about the price action and market sentiment. They can indicate the strength of buyers or sellers at certain price levels. Here are a few key points about shadows in forex trading:

1. Upper Shadow: When the upper shadow is long, it suggests that prices reached higher levels during the time period but faced resistance or selling pressure. This may indicate potential resistance levels or a bearish sentiment in the market.

2. Lower Shadow: If the lower shadow is long, it indicates that prices reached lower levels but encountered buying interest or support. This may suggest potential support levels or a bullish sentiment in the market.

3. Equal Shadows: When the upper and lower shadows are of equal length, it signifies that the market was highly volatile during that time period. It suggests that both buyers and sellers were active, and there was no clear dominance.

Shadows, in combination with other technical analysis tools and patterns, can provide insights into market trends, potential reversals, and support/resistance levels. Traders often use candlestick patterns, such as doji, hammer, shooting star, etc., which involve specific combinations of shadows and body sizes, to make trading decisions.

It’s important to note that shadows alone should not be the sole basis for making trading decisions. They should be used in conjunction with other technical indicators, chart patterns, and fundamental analysis to get a comprehensive view of the market.