What it means
A candlestick chart shows four prices for each period: the open, the high, the low and the close. The thick part of the candle, called the body, spans open to close, and the thin lines above and below, called wicks or shadows, show the high and low.
A short line candle has a small body and small wicks, so the whole candle is compact. Because the range is narrow, the candle tells you that neither buyers nor sellers took control.
Volatility, meaning the size of price swings, was low, and traders did not push the price far in either direction. The colour of the body, up or down, matters much less than its size.
The pattern is judged relative to recent candles rather than in absolute terms. A candle that is small compared with the last two weeks of activity is a short line candle, even if the price moved a few dollars in absolute terms.
Many analysts compare the body to a recent average of body sizes. Its meaning depends on where it appears.
After a long rally, a run of short candles may suggest the buying energy is fading, and a reversal could follow. In the middle of a sideways market, it is just normal quiet trading and signals nothing special.
The candle is rarely traded alone, and on its own it has little forecasting power. Analysts wait for the next candle, volume data or a break above or below a recent range before acting.
Used this way it is a prompt to pay attention, not a trading instruction.
In practice
Real-world examples.
Example
A swing trader reviews a chart of an airline stock after a three-week rally. Today's candle is tiny, with a body of only $0.20 against a recent average near $1.00. She tightens her stop loss, because the quiet candle suggests buyers are tiring.
Example
A treasury analyst watches the euro-dollar chart before a central bank announcement. The hours before the news produce a series of short line candles as traders wait on the sidelines. He holds off converting a large payment until the announcement has passed.
Example
A retail investor looks at a utility company's chart and sees a string of short line candles over a month. She concludes that the stock is in a quiet range and that it is a stable holding rather than a trading opportunity. She keeps it for its dividend.
Formula
Calculation
Body size = absolute value of (closing price - opening price)
Relative body size = body size / average body size of recent candles
Suppose a stock opens at $50.00 and closes at $50.30 during a session. The body size is 50.30 - 50.00 = $0.30. If the average body over the last 14 sessions is $1.20, the relative body size is 0.30 / 1.20 = 0.25, or 25%. A candle with a body at just a quarter of the recent average, and with small wicks, would count as a short line candle.Case study
Seen in the real world.
Tidewater Metals is an illustrative, fictional mining company whose share price had risen steadily for two months. A junior analyst at an investment club noticed that the final three trading days produced very short candles with almost no wicks.
She told the club that the narrow candles suggested a pause, and that the price might either break out or reverse. The club decided not to add to its position but also not to sell, and set alerts a few dollars above and below the recent range.
Two days later the price broke below the range on heavy volume and the club sold the next morning, avoiding a larger fall. The illustrative lesson is that short line candles can be early warnings, but the decision came from the breakout and the volume, not from the candle itself.
Watch out
Common mistakes.
- Treating a single short line candle as a reliable buy or sell signal, when it only shows a lack of conviction.
- Judging candle size in absolute dollars instead of against recent candles for the same stock.
- Ignoring volume, when a short candle on very low volume means something different from one on heavy volume.
Questions
People also ask.
Does the colour of a short line candle matter?
Only slightly, because the body is so small that the open and close are almost the same, so the colour says little about direction.
How is it different from a doji?
A doji has an open and close that are virtually equal, while a short line candle has a small but visible body and is defined mainly by its overall compact size.
What usually follows a short line candle?
Often a larger move in one direction, because quiet periods tend to be followed by more active ones, though the direction cannot be known in advance.
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