Explaining Candlestick Tails

Explaining Candlestick Tails

Submitted by adil on Thu, 07/03/2014 - 22:50

Learn to Read Candlesticks Accurately

One of the requirements of technical analysis is that a trader must have some sort of market related tool at his disposal. Charts are considered as a useful measure to fulfill that requirement. There are different types of charts, such as, Point and Figure, OHLC, Candlestick, Volume Delta etc. Every chart represents a different perspective of the investment market to assist the traders and investors in decision making. One of the commonly known chart type is Candlestick, which comprises of bar charts and represents the relationship between the closing and opening prices.

There are many traders in the market who are familiar with some of the candlestick formations, like engulfing patterns that signal a sudden reversal if there is a shift from aggressive selling to aggressive buying. However, what most of them do not pay attention to or fail to observe are the candle wicks or tails. They indicate the increase and decrease in price during a certain period and highlight the point where the price closes in respect to its increase and decrease. The candle tails do not any purpose if there is no movement. The Hammer and the Gravestone are two candlestick formations that can generate profitable outcomes for traders as they signify a favorable price turn when you merge these two candlestick forms with the help of resistance and support. These patterns are discussed in detail below.

The Hammer

The lower tail of the Hammer is longer than its body that is visible at the top of the candle. It indicates that there was an opening price that fell at a greater length within a period of a minute or 5 minutes etc., but came together at a close slightly higher or lower than the open. This phenomenon shows that buyer jumped in and hammered out a bottom.

It is important for you to know that long lower tail does not carry any worth itself, but it becomes noteworthy if its hammer is visible alongside support. It shows that the seller could not succeed despite his effort to push the price with the help of support, so now; the buyer is probably going to increase the price again.

The Gravestone

The Gravestone, on the other hand, is the opposite of the Hammer. It has a small body at the bottom and a long tail at the top of a candle. It signifies that the opening price reformed at a greater length within a time frame of daily candle sticks, one minute, five minutes, and then fell to a close slightly higher or lower than the open. This phenomenon indicates that seller jumped in and caused a graveyard for a buyer.

The long upper tail is noteworthy only when its gravestone is visible alongside resistance. It shows that the buyer couldn’t make it despite his effort to push the price through resistance, so now; the seller is probably going to decrease the price again.

Conclusion

Being a trader, you should always try to find candle tails. Having multiple long tails at a single point gives an indication that there is an existence of resistance or support. So, look forward to a reversal due to the existence of resistance or support if gravestone or hammer occurs alongside them.