Beginners Stock Trading: Understanding Stock Candlestick Shapes and How to Profit from them

In another article of mine, I explained why I use, and recommend using, candlestick charts for your trading research in beginners stock trading. In this article, I will explain the common shapes these candlesticks can take on the chart. Knowing these specific shapes can help you predict what the stock may do in the coming days. Keep in mind that since the candlestick system was developed in Japan, some of these shapes are named in Japanese.

When I mention a candlestick’s shape, I’m referring to the height and position of its wick and body. The color of the body will also give you clues as to the stock’s potential direction, going forward. Here are the most common candlestick shapes in beginners stock trading:

1. Doji - The open and close prices are the same, so there is no real body, just a horizontal line crossing at, or near, the center of the vertical wick. You may also see a doji with the horizontal bar at the top (dragonfly) or bottom (gravestone) of the vertical bar. A doji of any size or position can suggest that a trend may be reversing, but in beginners stock trading it is typically more useful when read in combination with other surrounding candles.

2. Spinning Top - The real body is relatively short and a wick appears on both the top and bottom, looking like a child’s toy top. This shape doesn’t mean much by itself, and is typically read in combination with its surrounding candles.

3. Standard Candle - This shape is similar to a spinning top, but has a taller body, and one or two relatively short wicks. This shape can help you determine the strength and direction of a stock’s recent move.

4. Hammer - Like the spinning top, the hammer has a short body, but it’s located at, or near, the very top of the vertical line, resembling a hammer. Like the doji, a Hammer can suggest a change in the stock’s recent direction.

5. Inverted Hammer - Essentially an upside-down hammer, this shape can be used to spot a reversal, when the stock is trending down.

6. Marubozu - This shape is generally a tall body with no wicks at all. This indicates a continuation in direction, as there was strong action in the same direction, all day.

While outside the scope of this article, learning about candlestick patterns is highly recommended for beginners stock trading. Shapes alone can give you some information about a stock, but reading several consecutive candles together gives you a much more powerful method of reading what may happen to the stock. Get familiar with the appearance of the shapes and what they mean, and your trading will improve. Look for a future article from me, regarding patterns.