An understanding of reversals candles can help to manage existing trades or an entry on a new trade.

A single candlestick can be a reversal signal, but a grouping of them can be even more powerful and show the struggle with price and moving higher or lower. The upper and lower shadows become the point of interest, when we see many lined up together it shows us the price struggle.

A tug of war presents itself in the form of long shadows (wicks) on candles and a smaller body shows an even more powerful struggle.

Candlesticks are made up of an opening price, closing price, the high of the time frame and the low of the time frame.

The opening and closing price form the body of the candlestick, while the highs and lows form the shadows on the candlesticks. Shadows are often referred to as wicks or tails on the body. But no matter what you call them they are showing the extended range outside of the opening and closing price of the time frame and how the bears or bulls pulled the price back in after the extension.

Shadows – A bearish signal a long upper shadow and bullish a long lower shadow, but as with all candlestick patterns, where it appears is important.

The Hammer – A reversal indicator after a significant downturn (long lower shadow is bullish).
Hanging Man – A reversal indicator after an uptrend (long lower shadow is NOT bullish).
Shooting Star – A reversal indicator after an uptrend (long upper shadow is bearish).

A little information to help identify and clarify the difference between the hammer, hanging man, and the shooting star:

  1. Shooting Star