Bearish harami patterns are two candlestick patterns that are found at the top of uptrends. The first candle is a larger bullish one, followed by a smaller bearish candle that fits inside the bullish candle, setting up a reversal to the downside. Look for the price to fail the second candle and hold to confirm bearish continuation.
What Is a Bearish Harami Pattern?
A bearish harami pattern consists of two candlesticks that form near resistance levels, where the second candle fits inside the larger first bullish candle. Typically, when the second, smaller candle fits inside the first, the price causes a bearish reversal. These patterns are two-day candlestick patterns found on charts. The bearish harami pattern suggests that a downtrend is coming.
Bearish haramis are a common bearish signal; stock charts comprise single-candlestick, two-day, and three-day candlestick patterns.
A single candlestick illustrates how traders from around the world felt about a stock on that particular day. Then, add two and three-day patterns to get a clearer picture.
Then, zoom out and observe the larger patterns, such as symmetrical triangles, ascending triangles, and descending triangles. Big triangle patterns clarify a stock’s direction and provide key support and resistance levels.
Reading charts, understanding candlesticks, and recognizing patterns are among the most crucial aspects of trading.
Basics
Bearish harami patterns are made up of two candlesticks. The first candle is a large bullish candlestick followed by a small bearish candlestick. The opening and closing prices of the second day’s candle should be inside the first candle’s real body.
They are supposed to form for a reversal while in a bullish uptrend. The length and strength of the bullish uptrend are not specified. Sometimes a bearish harami appears after a short uptrend. At other times, it occurs at the end of a prolonged uptrend.
The word harami is Japanese for pregnant. The outline of the two candlesticks looks like a pregnant woman, hence the name bearish harami.
In other words, the “pregnancy” concludes a new trend. Since this pattern is a reversal pattern, it may be a good time to close out any long positions when it appears on a chart. Traders can then switch sides of the trade to go short or buy put options to capitalize on the reversal.
As always, please wait for confirmation of the reversal before assuming it will happen. Nothing is 100% sure in the stock market, and it could be a trap for the bears.
The bulls and bears are always in a fight for dominance. One side may appear to be winning for a time, but trends are likely to change. That is why it is important to understand technical analysis, candlesticks, and patterns when trading.
Technicals
Patterns always break down; a bearish candle can form and continue to rise. This can be caused by the smaller patterns forming larger patterns.
Bearish harami patterns are bearish reversal patterns, but they could be forming at the end of a larger bullish continuation pattern, like bull pennants. Regardless of the short-term patterns, the trader needs to be able to see the larger patterns.
When using swing trading strategies or trading options, the trader needs to determine whether a breakout/breakdown of a larger pattern is likely to occur. This changes the type of trade, whether it is long or short.
Candlestick patterns form hints and warnings about potential breakouts or breakdowns. Be sure to pay attention to what other traders are trying to say.
Confirmation
Technical analysis plays a crucial role in trading. Support, resistance, and buy and sell signals are found using indicators. Candlesticks are the first line of defense in technical analysis.
Not only does a single candle tell a story, but the real bodies and wicks also form key support and resistance levels. When paired with indicators such as moving average lines, RSI, and MACD, these can become valuable tools.
Indicators like RSI (relative strength index) and MACD (moving average convergence divergence) tell when a stock is overbought, oversold, or moving into bullish/bearish territory.
Look to see where bearish harami patterns form regarding RSI and moving average lines. If overbought and away from moving average lines, a bearish harami may indicate the stock will reverse for a day or two to come back to equilibrium.
Bearish Harami Pattern Trading Strategy
- Watch for 1st bullish candlestick to form.
- Next, watch for 2nd smaller candlestick to fit inside 1st candle.
- Then, watch for 3rd candlestick to fall below 2nd.
- Traders take a short position once the price breaks below the 2nd candlestick.
- Place the stop above the top of the 2nd candle.
- Some traders take a long position once the price breaks above 2nd candle.
- Then place stops below the 2nd candle.
Bearish Harami Pattern Example
This is an example of a bearish harami pattern on a daily chart of $CVX. The price had a V-bottom on the chart and then made a nice gap-up. The gap created a strong bullish candlestick. Inside the bullish candle was a spinning top. Traders would take a short position as the price failed to break the spinning top and place their stop loss above the top of the bullish candle.
Bearish Harami Star Example
This is an example of a bearish harami star on the daily chart of $D. The star pattern was formed by the doji candlestick, which resembled a spinning top. You would trade this pattern the same way as a regular bearish harami. Take a short position as the price fails to break the doji and place a stop-loss above the bullish candlestick.
Fakeout Example
The picture above shows a daily chart of $AMD. It’s essential to remember that patterns sometimes fail, and there may be false alarms. This example shows a bearish harami at the base of a downward trend. This example shows three candles inside the bearish candle.
So, this bearish harami pattern didn’t continue the bearish trend. It turned into a bullish falling wedge breakout. There was a small inverse head and shoulders or triple bottom near the bearish harami pattern. So the bearish harami turned into a bullish pattern.
This is why it’s important to examine patterns that emerge within other patterns. Just because a pattern appears to be one thing, it often deceives traders and turns out to be something different. Look at the bigger overall patterns, especially with reversal patterns. Reversal patterns often happen near important support and resistance levels of bigger chart patterns.
Final Thoughts on Bearish Harami Pattern
Bearish harami patterns are bearish reversal 2-day patterns. Ensure you identify the larger pattern it is part of, as well as confirm the indicator. Always wait for confirmation and only assume a reversal will happen after checking. Use proper risk management techniques when trading a bearish harami pattern.
Frequently Asked Questions
The bearish harami pattern is a reliable reversal pattern found at the top of uptrends. This two-candlestick pattern signals that a bearish reversal is imminent in the stock's price.
A bearish harami contains a bearish candlestick with a bigger real body. If a doji forms inside the bullish candle, then it's called a bearish harami cross.
A bearish harami is a two-bar pattern that's found at the top of uptrends and signals that a bearish reversal is about to take place. The small bearish candlestick is contained within the bullish candlestick. This indicates that the bears are attempting to regain control.
