It is important to understand their significance before attempting to predict market direction. However, there are a few basic ways to interpret the appearance of a black candle. Candlesticks with black shadows are a signal of a strong downtrend. In other instances, a black candle may form part of a bullish reversal pattern. In this case, it is crucial to understand the context of the market before trying to make a trade.
A Few Traders May Not Be Familiar with Black Candlesticks
A black candlestick is particularly powerful in bear markets, after a downward breakout. This type of candlestick meets the predicted price target 84% of the time, and it drops by an average of 6% in ten days. This makes it one of the strongest candlesticks during such conditions, and black candlesticks that are at or near the yearly low will perform best. Another way to recognize a black candlestick is its size. Candlesticks with a height greater than the median are more likely to move two times as far after a breakout.
Besides the color of the candlesticks, chartists can also interpret the pattern by comparing the open and closing prices of securities. Candlesticks in green, blue, and white are essentially the same, although the colors represent different patterns. A white line indicates a higher close than the open price, while a black line indicates a lower closing price than the prior close. However, black candlesticks are often more difficult to interpret, and they are generally not recommended for use in trading.