Common Candlestick Patterns

Common Candlestick Patterns

Individual candlesticks and small groups of candlesticks can form recognisable patterns that hint at what might happen next. These patterns are not guarantees, but they give you an edge by revealing the balance of power between buyers and sellers at critical moments.

Single-Candle Patterns

• Doji — A candlestick where the open and close are nearly the same, creating a very small or no body with wicks on both sides. It signals indecision in the market. After a strong trend, a Doji can suggest the trend is losing strength. If you see a Doji on the Safaricom (SCOM) chart after a long rally, it may indicate the bulls are running out of steam.
• Hammer — A candle with a small body near the top and a long lower wick (at least twice the body length). It appears at the bottom of a downtrend and signals a potential reversal upward. The long lower wick shows that sellers pushed the price down, but buyers fought back and reclaimed most of the lost ground by the close.
• Shooting Star — The inverse of a Hammer. A small body near the bottom with a long upper wick. It appears at the top of an uptrend and signals a potential reversal downward. Buyers pushed the price up but sellers fought back hard.

Two-Candle Patterns

• Bullish Engulfing — A small red candle followed by a large green candle that completely covers (engulfs) the red candle's body. This pattern at the bottom of a downtrend suggests buyers have overwhelmed sellers and a reversal may be starting.
• Bearish Engulfing — The opposite: a small green candle followed by a large red candle that engulfs it. At the top of an uptrend, this warns that sellers have taken control.

Three-Candle Patterns

• Morning Star — A three-candle bullish reversal pattern: (1) a long red candle, (2) a small-bodied candle that gaps down (the star), and (3) a long green candle that closes well into the first candle's body. This pattern signals that a downtrend may be ending as buyers step in forcefully.
• Evening Star — The bearish counterpart: (1) a long green candle, (2) a small-bodied candle that gaps up, and (3) a long red candle. This suggests an uptrend may be reversing.

Always look for confirmation. A single candlestick pattern is a clue, not a conclusion. Confirm with volume, the overall trend, and subsequent price action before making decisions.