Pattern Flat (Neutral) Candle
Flat (neutral) candle is a candlestick pattern that forms when the opening and closing prices are identical or very close. This candle reflects market indecision, when the forces of buyers and sellers are balanced.
Key Features:
- Opening price equals closing price (O == C).
- Upper and lower shadows can be of different lengths.
- Indicates neutrality or indecision in the market.
- May signal consolidation before continuation of the existing trend or a possible reversal.
Interpretation
A flat candle by itself does not provide a clear signal about market direction, but can be useful in the context of previous candles and the overall trend:
- After a strong upward or downward movement, a flat candle may signal a weakening of momentum and possible reversal.
- During a sideways movement, a flat candle confirms the continuation of consolidation.
- The size of the shadows can provide additional information about market sentiment - long shadows indicate rejected attempts at price movement, while short shadows indicate low volatility.
Trading Strategies
Flat candles are rarely used as standalone signals for position entry, but can help in making trading decisions:
- Look for confirmation from subsequent candles or other technical indicators before making a trade.
- Use flat candles to identify support or resistance levels in combination with other analysis methods.
- Increase stop-loss size or take profit if flat candles appear in a trend, which may indicate weakening movement.