The answer is because shaven candles indicate strong momentum in price movements. In the above bearish shaven example, there was no shadow because the sellers in the market completely overwhelmed the buyers; the buyers couldn't drive the price up at all! The sellers were too strong.
And once the buyers are temporarily defeated, prices will continue to free-fall until the buyers can regain their strength and start pushing prices back up again.
Are shaven candles 100% accurate in predicting future price movements?
Nope. Not a chance. If it did then all traders would be rich by now. Haha... nice try.
Sometimes, shaven candles are immediately followed by prices moving in the opposite direction of them... as is often the case during the release of certain economic news announcements.
Important: All types of technical analysis (including candlestick analysis) is likely to be ineffective during high-impact news releases, such as the Non Farm Payroll report on the first Friday of every month. Do not, I repeat, do not trade during these periods.
Shaven candles aren’t the only indicators of strong momentum in the market. There are several other ways to identify the strength of market price movements. However, shaven candles are one of the most reliable indicators that I've come across.
To summarize...
I hope you now have a good idea of how momentum works... the main point you should remember is that momentum is like throwing a stone: the stronger the initial thrust, the further the stone travels. In this sense, the larger a shaven candle, the more likely (and further) prices will continue move in the direction of that candle.
However, you should remember to ignore any shaven candles on the charts during times when important economic news is announced.
BUT!
As with all other trading indicators and analysis tools, you should never, ever, ever (EVER) rely solely on candlestick analysis to trade. This means that you shouldn't just blindly enter into a BUY trade the moment you see a bullish shaven candle.
Candlestick analysis is meant only to be one criteria out of the many trading criteria you should have in your own trading system.
Use candlestick analysis together with your technical indicators (or trading method). If you see a bullish shaven candle, but your other technical indicators tell you not to enter into a BUY trade, then please don't buy!
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