Business, Legal & Accounting Glossary
Shadow is the small 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.
In candlestick charting, a shadow is a line on a candle that conveys visual information about the direction and intensity of trading in a particular asset. A shadow indicates the price range over which an asset traded during a specific time period, usually a day. The length of a shadow also reveals approximately when trading occurred and whether it was strong or weak. For example, a short shadow reveals trading was concentrated at the open and close, while a long shadow shows trading extended beyond the open and close. Shadow length and position together reveal even more about the quality of trading action. A long shadow above the body of a candle and a short shadow below it suggest buyers led the trading session until nearly the end, when sellers appeared to drive prices down. The reverse – a short shadow above and long shadow below – suggest sellers led the session until nearly the end, when buyers appeared to drive prices up. A long shadow both above and below a candle suggests buyers and sellers were equally active, and the market was indecisive. A short shadow above and below a candle suggest buyers and sellers were equally inactive, and the market was indecisive.
Essentially, the upper and lower shadows illustrate the highest and lowest prices at which a security has traded over a standard time period – day, week, month, etc.
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This glossary post was last updated: 22nd March, 2020