What Do The Colors Of The 7 Day Candles Mean?

A 7 day candlestick chart shows the open, high, low and close prices for a security over a 7 day period. Each candlestick represents one day’s worth of trading activity. The bottom of the candlestick represents the low price for that day, while the top of the candlestick represents the high price. The colored or filled in body represents the range between the open and close prices for that day.

7 day candlestick charts are useful for technical traders to analyze price patterns and trends over the past week. The color and shape of the candlesticks convey important information about the market sentiment and momentum. Traders look for candlestick patterns like dojis, hammers, and shooting stars to make trading decisions.

In forex trading, 7 day candles are commonly used on daily charts to identify support and resistance levels as well as potential reversals. The long timeframe helps filter out market noise.

Green Candles

Green candles signify bullish sentiment and buying pressure in the market. They indicate that the closing price is higher than the opening price for the selected time period on the candlestick chart. As per My Pivots, “A Green Candle represents the open, high, low and closing points on a candlestick chart for a time period where the closing price is above the opening price.” The color green is used to quickly visualize that buyers were dominant, driving the price up from open to close.

When trading with candlestick charts, green candles are seen as a bullish sign since they reflect strengthening demand. The bigger the green candle’s body relative to other candles, the more buying pressure there was during that session. Rising green candles indicate the potential start of an uptrend. However, candlestick analysis depends on observing the sequence of patterns rather than any single candle’s color. One green candle does not guarantee a continuing uptrend without confirming signals from additional candle formations.

Red Candles

A red candlestick indicates that the closing price of a security is lower than both the open and prior close. The color red signifies bearish sentiment and selling pressure in the market. According to Investopedia, “the long upper shadow of the red candlestick illustrates the intra-day high and its closing shows the return to the lower end of the trading range by the session’s end.”

As explained by StockCharts, “If the previous day’s closing value is less than or equal to the closing value for the current day, draw the current day’s candlestick in red.” So a red candlestick forms when the price closes lower than the previous close. The hollow or filled portion shows the relationship between the open and close. A filled candle means the close was lower than the open that day.

Overall, red candlesticks indicate negative sentiment, bearish momentum and downside price pressure. Seeing a long red candle can signal strong selling that day and potential continuation of a downward trend.

Long Bodies

Long bodies on candlesticks indicate stronger buying or selling pressure in the market. Specifically, a long green (or white) body represents strong buying pressure that drove prices up from the open to the close. This shows that buyers were aggressive and demand was high, pushing the price higher. In contrast, a long red (or black) body represents strong selling pressure that drove prices down over the period. This shows aggressive selling and high supply in the market (Investopedia).

The longer the body is, the more intense the buying or selling pressure during that period. A long green body shows bullish strength, while a long red body shows bearish strength. Traders watch for long bodies, especially after periods of small or indecisive candles, since they can signal the start of a new trend or momentum in a certain direction.

Short Bodies

Candlesticks with short bodies indicate uncertainty and indecision in the market. The short bodies show that the opening and closing prices were very close together relative to the overall length (high and low) for the period. This demonstrates that there was not much price movement from open to close and that buyers and sellers are in equilibrium with limited conviction in either direction.

Short bodies reflect consolidation, as neither buyers nor sellers were able to gain control and drive the price higher or lower over the period. The short bodies show an undecided market after a period of strong trending action. This could be viewed as a pause or pullback before continuation of the prior trend, or as a potential reversal preceding new trending action in the opposite direction.

According to Investopedia, “Short-body candles may indicate a period of consolidation in a stock or other asset, but their interpretation will vary based on what other price action has occurred” (https://www.investopedia.com/terms/s/short-line-candle.asp). Analyzing prior price action and volume will provide context for interpreting the meaning of short candlestick bodies within the overall technical picture.

Wicks/Shadows

The wicks or shadows on a candlestick represent the trading range for that period. Specifically, the upper and lower wicks show the highest and lowest prices that were traded during that time frame.

A long upper wick indicates strong selling pressure during the period that drove prices down from the open. However, buyers were able to step in and push prices back up to close near the open. This creates a long upper wick showing the rejected lower prices. As per Investopedia, a long upper shadow represents a failure to maintain the selling momentum, and this often precedes an upward movement.

Conversely, a long lower wick shows strong buying pressure that drove the price up, but sellers later stepped in and pushed the price back down to close near the open price. As stated by Corporate Finance Institute, a long lower wick indicates the bulls tried to push the price up during the period, but bears regained control and forced the price back down to close near the open. This rejected higher price is represented by the long lower wick.

In summary, the wicks or shadows demonstrate where prices were rejected, giving traders valuable insight into the market sentiment and momentum over a period of time.

Doji Candles

Doji candles represent indecision in the market. They are formed when the open and close price of the candle are equal, creating a candle with no real body. Just a thin vertical line showing the open/close price. This shows that the bulls and bears are in equilibrium, with neither gaining control during that period.

The lack of a body illustrates the tug of war between buyers and sellers. There was a lot of back and forth within the candle’s timeframe, but ultimately the close was at or very near the open. This indicates indecision about the future direction of price.

Doji candles by themselves are neutral patterns that signal a pause or consolidation. They do not provide trade signals on their own. However, doji candles combined with other patterns or at key support/resistance levels can provide useful information about potential trend changes or breakouts.

Overall, a doji candle represents a period of indecision and potential reversal. Traders will often look for confirmation from the next candle before acting on a doji signal.

Sources: https://www.investopedia.com/terms/d/doji.asp

Hammer Candles

A hammer candlestick is a potential reversal signal that can occur after a downtrend in price. The hammer has a long lower wick and a short body at the top of the candlestick with little or no upper wick. This pattern indicates that although prices opened and traded much lower, buyers stepped in to support the price by the close, creating the long lower wick.

According to Investopedia, “The hammer candlestick pattern is a popular technical analysis pattern that is used in many financial markets to signal the potential for a reversal in trend.” The pattern shows rejection of lower prices and potential for an uptrend reversal after a decline.

A hammer candle needs to have at least 2-3 times more range in the lower wick versus the body for it to qualify as a potential bottoming signal. The long lower wick reflects the rejection of lower prices by buyers.

Shooting Star Candles

A shooting star candlestick forms when there is a significant sell-off during the trading day that pushes the price well below the open but the price rallies back to close at or near the open price. This forms a candlestick with a long upper shadow and small real body at the low of the day, which looks like a shooting star (according to Investopedia).

The shooting star is considered a bearish reversal signal, especially when it occurs after an uptrend. The long upper shadow indicates buying pressure during the day but the sellers eventually took over and drove the price back down near the open. This selloff after a rise potentially signals weakening momentum and a reversal of the trend.

Conclusion

In summary, candlestick colors carry great significance in technical analysis and chart reading. The color of the candlestick represents the price movement from open to close during that timeframe. Green (or white) candlesticks indicate the closing price is higher than the opening price, signaling bullish sentiment. Red (or black) candlesticks mean the closing price is lower than the open, conveying bearish sentiment. Beyond just the color, factors like candlestick size, shape, and wicks also provide traders with meaningful information about market momentum and potential reversal points. By analyzing candlestick patterns, traders aim to gain key insights into market psychology and identify strategic entry and exit points for trades. Though simple in design, the color-coded candles offer a powerful visual tool for making sense of price data.