Long Lower Shadow Candlestick Pattern

A long lower shadow candlestick pattern is that where a candle has a long lower shadow or wick below the body of the candle. The body of the candle is the thick bar that represents the difference between closing and opening prices of the day. The wick or shadow of a candle is the long vertical line that extends above and below the body of a candle. One essential tool in the arsenal of technical analysis is using candlestick patterns to interpret market sentiment and potential price action. You might already recognise certain patterns forming in price action.

One such pattern is a long lower shadow candlestick which provides information about how the share market behaves and where the trend may change direction. This article covers what is a long lower shadow candlestick pattern and how to use long lower shadow candlestick pattern.

What is a Long Lower Shadow Candlestick?

A long lower shadow candlestick is a type of candlestick formation characterised by a small body at the top of the candle and a long wick or shadow extending below. The long lower shadow indicates that sellers pushed the price down during the trading period, but buyers were able to push it back up, closing near the opening price.

The long shadow candlestick pattern is often seen as a sign of potential bullish reversal, especially at the bottom of a downtrend. It implies that sellers were in charge earlier, but buyers took over and prevailed later, which could indicate a change in market sentiment.

Common Types of Long Lower Shadow Candlesticks

There are a few different types of long lower shadow candle patterns, all with unique characteristics and implications. Let’s look at three common types:

Hammer Candlesticks

The hammer is a popular long lower shadow candlestick pattern. It forms at the bottom of a downtrend and is characterised by a small body at the top of the candle with a long lower shadow that’s at least twice the length of the body. The hammer indicates that despite intense selling pressure, buyers were able to push the price back up, potentially signalling a bullish reversal.

Dragonfly/Long Legged Doji Candlesticks

A dragonfly doji is a special type of trading long shadow candlestick in which the opening and closing prices are the same or very close, creating a tiny body or no body at all. The long lower shadow indicates that sellers pushed the price down during the session, but buyers were able to push it all the way back up to the opening price.

Profit Taking Candlesticks

These candlestick long lower shadow patterns often appear at the end of an uptrend. They indicate that while there was some selling pressure (possibly due to profit-taking), buyers were still present in the market, preventing a complete reversal. This pattern can sometimes present a temporary pause in an uptrend rather than a full reversal.

Now it’s time to explore how to trade long shadow candlesticks.

What Do Long Lower Shadow Candlesticks Indicate?

Long lower shadow candlesticks can provide valuable insights into market psychology and potential future price movements. Here’s what they typically indicate:

• Rejection of Lower Prices: The long lower shadow shows that the market tested lower prices but ultimately rejected them. This can be a sign of strong buying interest at lower levels.
• Potential Bullish Reversal: When appearing at the bottom of a downtrend, these patterns can signal a possible trend reversal. They guide that sellers may be losing steam and buyers are starting to take control.
• Support Levels: The low point of the shadow can often act as a support level in future trading sessions. Traders usually watch these levels for potential bounces.
• Indecision: In some cases, particularly with doji patterns, a long lower shadow candle can indicate market indecision. This might imply a pause in the current trend rather than an immediate reversal.
• Oversold Conditions: In a downtrend, these patterns can sometimes indicate that the market has become oversold and is due for a bounce or reversal.

Example of Long Lower Shadow Candlestick Pattern

Let’s consider a practical example to understand how to identify and interpret a long lower shadow candlestick pattern. Imagine you are analysing the daily chart of a popular Indian stock, say ABC Industries.

You notice that after a prolonged downtrend where the stock price fell from ₹2,573 to ₹2,192, a candlestick forms with the following characteristics:

• Opening price: ₹2,205
• Highest price: ₹2,218
• Lowest price: ₹2,150
• Closing price: ₹2,210

This candlestick has a small body (₹5 difference between open and close) and a long lower shadow (₹55 from the low to the body). This formation means that while sellers initially pushed the price down to ₹2,150, buyers stepped in and pushed it back up to close near the opening price.

If the price rises in the following days, this long lower shadow candlestick will confirm its bullish reversal signal.

Conclusion

The long lower shadow candlestick pattern is a useful technical analysis tool in a trader’s arsenal. It provides clues about market sentiment and potential trend reversals. By knowing what to look for and how to decipher these patterns, traders and investors can make better decisions about future buying and selling opportunities.

However, it’s important to remember that no single pattern should be used in isolation. The long lower shadow candlestick meaning is most reliable when confirmed by other signals and within the context of the broader market trend.