Japanese candlesticks are the most common way to display price action, because they compress the battle between buyers and sellers into an easy-to-read visual. This guide covers the basics and the key patterns in practice.

Candle anatomy

Each candle represents a time period (day, hour…) and consists of:

  • The body: the distance between the open and close. A bullish body (close above open) and a bearish body (close below).
  • The wicks (shadows): the highest and lowest price reached during the period.

A long body = clear control by one side; a long wick = rejection of a particular level.

Key reversal patterns

  • Hammer: a small body with a long lower wick after a decline — a possible bullish reversal signal.
  • Bullish engulfing: a large up candle that engulfs the prior down candle — buying strength.
  • Morning star: three candles signalling the end of a decline and the start of a rise.
  • Shooting star: a long upper wick after a rise — a bearish reversal warning.

The golden rule: a pattern alone isn't enough

The biggest mistake is buying just because a hammer appeared. Patterns gain their power from context:

  1. Location: a reversal pattern at a key support or demand zone is far stronger than one in the middle of a move.
  2. Volume: a pattern with high trading volume is more reliable.
  3. Trend: continuation patterns in the stock's direction succeed more often than trying to fight it.

The right timeframe

For a beginner on the EGX, the daily timeframe gives cleaner, less noisy signals than small timeframes. Always confirm the signal on a higher timeframe.

Bottom line

Candles are the market's language: learn their anatomy and key patterns, but never trade them in isolation from trend, volume, support and resistance. The EGX AI Analyzer detects these patterns automatically on EGX stocks with their full technical context.

This content is educational and not investment advice.