Candlestick patterns are some of the most reliable tools that can help a trader predict the price movement of an asset. Among the various patterns that may form on the charts, single candlestick patterns are the simplest and easiest to read and interpret. They enjoy a good degree of accuracy too. Single candlestick patterns involve reading and interpreting a candle that’s formed over only a single trading session. One such pattern is the long lower shadow candlestick, which we will be delving into in this article.
Long lower shadow candlestick pattern – an overview
The long lower shadow candlestick is a technical indicator that is used by traders to identify a reversal in the market trends. The pattern features a short body on the upper end of a candle, with a long lower shadow. The lower shadow in the candle is typically at least two times longer than the length of the body. The presence of a long lower shadow candlestick during either a bullish or a bearish trend is indicative of an impending trend reversal.
When a long lower shadow candlestick appears at the top of a bullish trend, it is referred to as the ‘hanging man,’ and is construed as an indicator of a bearish trend reversal. Similarly, when a long lower shadow candlestick appears at the bottom of a bearish trend, it is referred to as the ‘hammer,’ and is construed as an indicator of a bullish trend reversal.
Long lower shadow candlestick pattern – an example
Now that you’re acquainted with the long lower shadow candlestick, let’s see what it looks like.
As you can see in this figure here, the body of the candlestick is relatively much smaller than the lower shadow. And, depending on the market movement, the candle can end up being either bullish or bearish. Furthermore, the long lower shadow candlestick can either have a short upper shadow or no upper shadow at all.
Hammer pattern – an example
Here’s a candlestick chart of Nifty 50 that clearly shows what a long lower shadow candlestick looks like when it appears at the bottom of a bearish trend (hammer).
In this candlestick chart, you can clearly see that the prices are on a downtrend in all the three marked instances. This indicates that the bears are currently in full control of the market. However, the long lower shadow candlestick makes an appearance here at the end of the bearish trend.
The long lower shadow of this pattern essentially signifies that the sellers are trying to take control of the price movement, but are unable to do so due to the sudden and unexpected entrance of the bulls in the market. The bulls, with their intense buying interest, manage to drive the prices back up to close around the opening point of the day. The appearance of the hammer pattern brings about a change in the trend from bearish to bullish, which can be clearly seen in the above candlestick chart.
Hanging man pattern – an example
Now, let’s take a look at a candlestick chart that clearly shows what a long lower shadow candlestick looks like when it appears at the top of a bullish trend (hanging man).
Again, in this candlestick chart, you can clearly see that the prices are on an uptrend in the marked instance. This indicates that the bulls are currently running the show in the market. However, the long lower shadow candlestick makes an appearance here at the end of the bullish trend.
The long lower shadow essentially signifies that the sellers are trying to take control of the price movement, but are unable to do so due to the bulls putting up a stiff resistance against their attempts to drive the price down. Nevertheless, the sudden influx of sellers in the market throws off the bulls completely, thus bringing about a reversal in the trend. The appearance of the hanging man pattern brings about a change in the trend from bullish to bearish, which can be clearly seen in the above candlestick chart.
How to use the long lower shadow candlestick pattern?
Before initiating a trade based on the long long lower shadow candlestick pattern, here are some key pointers that you should know about.
– The first step is to identify a trend. It can either be bullish or bearish.
– Once the trend is identified, check if a candle with a long lower shadow makes an appearance.
– The long lower shadow candlestick can either be bullish or bearish and can either have a short upper shadow or no shadow at all.
– Once the pattern is spotted, it is highly advisable to wait for a candle that confirms the trend reversal before entering into a trade. For instance, if the long lower shadow pattern appears at the top of a bullish trend, it is advisable to enter into a trade only if the next candle is also bearish.
– The trade can be executed once you encounter the confirmation candle on the charts.
Conclusion
The long lower shadow candlestick pattern is quite a reliable technical indicator that can help you time your trades accurately. To minimise the chances of your trading decision taking an unexpected turn, you can combine this pattern with other technical indicators as well.
