What is a Short-Line Candlestick Pattern?

Last Updated: 6 Mar 2023

Just like the English alphabet is to human education, the candlestick chart is to Technical analysis Candlestick is one of the most important and widely used charts by technical analysts and day traders. It informs precisely about the high, low, opening, and closing price of a security in a day represented in the shape of a candlestick.

While candlesticks provide a great deal of information and consist of various types, this article answers what is short-line candlestick patterns in detail.

Short-Line Candlestick Pattern

A candlestick chart is similar to a bar chart as it represents the four important data points regarding the pricing of a stock: high, low, open, and close.

The wide part of the candlestick is known as the real body. It indicates whether the closing price was higher or lower than its opening price. It is represented in different colours based on the price movement and offers information for a larger period. If the stock closes lower than its opening price, it is represented in red or black; if it closes above its opening price, it is represented in green or white colour.

Generally, investors use these colours as indicators to conclude the stock price A wider real body means the difference between the opening and closing prices of the security is huge; a narrow range indicates the opposite. The shadows or wicks represent the highest and lowest prices of the day. A candlestick chart with a short-real body is known as the short-line candlestick chart pattern or short candles.

A short-line candlestick pattern occurs when the difference between the opening price and the closing price is minor over a certain period. Short candles are not affected by the length of the upper and lower shadows that represent the high and low for that period.

A short-line candlestick pattern may or may not have a narrow range of high and low but certainly has a narrow open and close range. A short candle may indicate a consolidation period for the security. However, its interpretation depends upon the preceding and following price actions.

Interpretation of short line candlestick patterns

A series of short-line candles may be indecisive and give no indications of future price movements. A series of short-line candlestick patterns with broader support or resistance indicates the initiation of high volatility. On the other hand, a series with narrow high and low ranges suggest a low volatility period.

While candlestick charts often signal market sentiments, a short-line candlestick pattern indicates the indecisiveness of the market with little to no price movement. You can infer from a short-candlestick pattern after looking at its occurrence in the price chart. The different types of short candles shapes and its meaning are listed below:

• Hammer: A hammer pattern is formed if a security trades significantly lower than its opening price for the day but closes near the opening price, i.e. it forms a short-line candlestick pattern. There is a lower tail with no upper tail in hammer formation. This is known to be a bullish reversal pattern, indicating the end of a downtrend. The lower shadow in a hammer pattern is at least twice the size of the real body.
• Hanging Man: Visually identical to a hammer, the hanging man differs from a hammer contextually. The hanging man is formed after a prolonged uptrend as traders, seeing a shares sell-off, want to grab the stocks at a discounted rate.
• Inverted Hammer: This pattern occurs after a sustained price decline. It has long upper shadows and small real bodies, making a short-line candlestick with negligible lower shadow.
• Shooting Star: Structurally, it is similar to the inverted hammer pattern with a long upper shadow, negligible lower shadow, and small real body. However, this pattern is formed after a prolonged uptrend. It warns the traders that the security cannot sustain at high levels.
• Doji: A Doji pattern alone cannot indicate a clear decision because of the presence of both upper and lower shadows. This candlestick pattern may indicate a price reversal or trend continuation, depending upon the confirmation. For example, a dragonfly Doji is formed when the security’s open, close, and high prices are almost equal. This equal open and close price results form a short-line candlestick pattern. This pattern indicates a potential price reversal, depending upon the prior price action.

Frequently Asked Questions

What is a candlestick chart?

Ans: It is a commonly used price chart in technical analysis that determines the possible price movement based on previous patterns. It is similar to a bar chart as it reveals the four price points: high, low, open, and close.

What is a short-line candle?

Ans: A short-line candle is a candle pattern on a candlestick chart with a short-real body.

How is a short-line candlestick pattern formed?

Ans: A short candlestick pattern is formed when the difference between the opening and closing price is minor over a certain period.

What does a short-line candlestick pattern indicate?

Ans: A short candlestick pattern indicates different meanings depending on its position on the price chart. It can indicate a price reversal or trend continuation combined with a confirmation.

What are the types of short-line candlestick patterns?

Ans: Depending upon the position and context of the short candle, there are five types: hammer, hanging man, inverted hammer, shooting star, and Doji.