Chart school · lesson 2 of 10

Single-candle shapes: doji, hammer, shooting star and the rest

Some candle shapes have names. A name is a quick way to describe what one period looked like. It is not a forecast.

The idea

Each shape here is one candle. It is recognised by two things: how large the body is, and where the body sits between the high and the low.

Several of the shapes are the same candle in a different place. A hammer and a hanging man are drawn identically; one comes after a fall and the other after a rise. Where a candle appears matters as much as its shape, and no single candle is reliable on its own.

2.1Read either way

Doji

What it looks like: The open and the close are at almost the same price, so the body is a thin line. There are wicks on one or both sides. The candle looks like a cross.
What traders read into it: Indecision. The price moved both ways and finished where it began. After a strong run, traders read it as the run losing force.
Where it fails: In a quiet, sideways market dojis appear constantly and mean nothing. One doji does not end a trend; many trends carry on straight through it.

The doji, in the Playbook

2.2Read either way

Long-legged doji

What it looks like: A doji with long wicks above and below, and the thin body near the middle. The period covered a wide range and still closed where it opened.
What traders read into it: A louder form of the same indecision: both sides pushed hard and neither held the ground. Traders take it as a sign that the market is unsettled.
Where it fails: A wide range can come from one news release and nothing more. The candle tells you the period was volatile, not which way the next one will go.

2.3Usually read as bullish

Dragonfly doji

What it looks like: The open, the close and the high are all at or near the same price. There is one long wick below and little or none above. It looks like a capital T.
What traders read into it: Sellers pushed the price well down and buyers brought it all the way back by the close. After a fall, traders read that as selling being absorbed.
Where it fails: The low of the wick has been tested once, and may be tested again. If the next candles close below it, the reading is wrong.

2.4Usually read as bearish

Gravestone doji

What it looks like: The mirror of the dragonfly. The open, the close and the low sit together, with one long wick above. It looks like an upside-down T.
What traders read into it: Buyers pushed the price up and lost all of the gain by the close. After a rise, traders read it as buying being met by sellers.
Where it fails: In a strong uptrend, a rejected high is often just a pause. A close above the top of the wick cancels the reading.

2.5Usually read as bullish

Hammer

What it looks like: It comes after a fall. The body is small and sits at the top of the candle. The lower wick is at least twice the length of the body, and the upper wick is short or missing.
What traders read into it: The price was driven down and then recovered most of the loss before the close. Traders read it as buyers stepping in at lower prices.
Where it fails: A hammer in the middle of a range, with no fall before it, is only a candle with a long wick. And one recovery does not end a downtrend: many hammers are followed by lower lows.

The hammer, in the Playbook

2.6Usually read as bearish

Hanging man

What it looks like: The same shape as a hammer: small body at the top, long lower wick. The difference is where it stands. A hanging man comes after a rise.
What traders read into it: During the period, sellers were able to push the price far down, even though it recovered. After a rise, traders read that as the first sign of selling.
Where it fails: Textbooks themselves treat it with caution: the price did, after all, close near its high. Most readers wait for a lower close on the next candle before taking any notice.

2.7Usually read as bullish

Inverted hammer

What it looks like: It comes after a fall. The body is small and sits at the bottom of the candle. The upper wick is at least twice the body, and the lower wick is short or missing.
What traders read into it: Buyers tried to lift the price and could not hold it, but sellers did not push it to a new low either. Traders read it as a first attempt to turn.
Where it fails: The candle itself shows a failed rally. Without a higher close on the next candle, it is simply sellers winning the period.

2.8Usually read as bearish

Shooting star

What it looks like: The same shape as an inverted hammer, but after a rise: a small body at the bottom, a long upper wick, little or no lower wick.
What traders read into it: The price ran up to a new high and was pushed back to where it started. After a rise, traders read it as buyers being rejected at higher prices.
Where it fails: In a strong uptrend a rejected high is common and the trend often continues. A later close above the wick's top cancels the reading.

The shooting star, in the Playbook

2.9Read either way

Marubozu

What it looks like: A long body with no wicks, or almost none. A rising marubozu opens at its low and closes at its high. A falling one opens at its high and closes at its low.
What traders read into it: One side controlled the whole period, from the first price to the last. Traders read it as conviction in that direction.
Where it fails: A very long candle can also be the last push of a move, when the final buyers or sellers arrive together. One strong candle after a long run is not a fresh start.

The marubozu, in the Playbook

2.10Read either way

Spinning top

What it looks like: A small body near the middle of the candle, with a wick above and a wick below of similar length. Unlike a doji, the body is small but clearly there.
What traders read into it: A balanced period. The price moved both ways and finished close to where it started. Traders read it as a pause.
Where it fails: It is one of the most common candles on any chart. On its own it tells you almost nothing; it only matters as part of something larger.

The spinning top, in the Playbook

SimulationEvery drawing is invented to show a shape as plainly as possible. None of them is a market, and a real chart is rarely this tidy. Educational information, not investment advice or a recommendation to trade.

To carry away

Lesson 2, in four lines.

01
A shape is recognised by the size of its body and where the body sits.
02
The same candle has different names after a rise and after a fall. Where it stands is half of the pattern.
03
A long wick is a rejected price. A missing wick is a price nobody argued with.
04
No single candle is reliable on its own. Each is one observation.

Check yourself

Three questions on this lesson.

Choose an answer and press Check. You can try each as often as you like. No answer is stored, nothing is sent anywhere and no score is kept.

Question 1 of 3
What makes a candle a doji?
It has no wicksIts open and close are at almost the same priceIt is the longest candle on the chart
Question 2 of 3
A hammer and a hanging man are drawn the same way. What is the difference?
The hammer is green and the hanging man is redThe hammer has a longer wickThe hammer comes after a fall, the hanging man after a rise
Question 3 of 3
A shooting star appears in a strong uptrend. What can be said for certain?
A higher price was reached and rejected within that periodThe uptrend has endedThe next candle will fall

An explanation for study. It is not advice, a recommendation or a forecast. No pattern is reliable on its own, and a shape described here says nothing certain about what a price will do next.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.

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The idea of this lesson

Lesson 2, in four lines.

Three questions on this lesson.

The idea of this lesson

Lesson 2, in four lines.

Three questions on this lesson.