A single candlestick shows how a stock traded within a certain time frame (minutes, days, weeks or even months). The candle stick can tell you where the stock opened and closed as well as its high and low.
The rectangle portion of the candlestick is called “the body” and the thin lines above and below the body represent the high/low range. If the stock closes higher than its opening price, a hollow (or white) body is drawn. If the stock closes lower than its opening price, a filled (or red) candlestick is drawn.
Long Vs. Short Bodies
The size of the body reveals how intense the buying or selling pressure was for the designated time frame. Long hollow (or white) candle sticks show strong buying pressure while long filled (or red) candlesticks show strong selling pressure. After extended declines, long candlesticks can mark a potential turning point or support level.
Long Vs. Short Shadows
The upper and lower shadows on candlesticks can tell a lot about the trading session. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close, while candlesticks with long shadows indicate that the price extended well past the open and close.
Candlesticks with a long upper shadow and short lower shadow show buyers dominated during the session and pushed prices higher, but sellers later forced prices down from their highs before close. On the other hand, candlesticks with long lower shadows and short upper shadows show that sellers dominated during the session and drove prices lower, but buyers later bid prices higher by the end of the session.
Spinning tops are candlesticks with long upper and lower shadows with small bodies. These candle sticks are known for representing indecision. The small body shows little movement from open to close and the shadows indicate that both bulls and bears were active during the session but neither could gain the upper hand. Spinning tops can signal both the top of a run and the bottom of a decline.
The doji is formed when a stock’s open and close are exactly or almost equal. The length of the upper and lower shadows can be long or short, but the resulting candlestick looks like a cross or plus sign. Although a doji can help signal a reversal much like the spinning top, they should never be used alone. Any bullish or bearish signal using the doji is based on preceding price action and future confirmation.
Dragon Fly Doji
A dragon fly doji is made when the open, high and close are equal, but the stock’s low creates a long lower shadow, creating a candle that looks like a “T”. A dragon fly doji shows that sellers dominated trading and drove prices lower during the session, but that buyers came back and pushed prices back to the opening level and the session high. A dragon fly doji can be used to signal a potential reversal of a downtrend as well as a potential reversal of an uptrend.
Gravestone Fly Doji
The gravestone doji is simply an upside down dragon fly doji. The gravestone doji shows that buyers dominated trading and drove prices higher during the session, but that sellers pushed back and drove prices back to the opening level and the session low. As with the dragon fly doji, the gravestone doji only indicates a reversal based on previous price action and future confirmation. Even though the long upper shadow shows a failed rally, the intraday high shows there is buying pressure, so bearish or bullish confirmation is required.