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 price to fail the second candle and hold to confirm bearish continuation.
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, 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 are made up of single candlestick, 2, and 3 day candlestick patterns.
A single candlestick shows how traders from all over the word felt about a stock that day. Then add on a two and/or three day patterns to start getting a clearer picture.
Then zoom out and see the big patterns such as: symmetrical triangle patterns, ascending triangle patterns and descending triangle patterns. Big triangle patterns give an even clearer picture of the direction of a stock along with providing key support and resistance levels.
Being able to read charts, understand candlesticks, and recognizing patterns are some of the most important aspects of trading.
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 days candle should be inside of the real body of the first candle.
They are supposed to form while in a bullish uptrend for the purpose of a reversal. The length and strength of the bullish uptrend is not specified. Sometimes a bearish harami appears after a short uptrend. Other times it occurs at the end of a long uptrend.
The word harami is Japanese for pregnant. The outline of the 2 candlesticks looks like a pregnant woman; hence the name bearish harami.
In other words, the conclusion of the “pregnancy” produces a new trend. Since this pattern is a reversal pattern, when it appears on a chart, it may be a good time to close out any long positions. Traders can then switch sides of the trade to go short or buy put options to capitalize on the reversal.
As always, 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 be winning for a time but trends will change. That is why it is important to need to understand technical analysis, candlesticks, and patterns when trading.
Patterns break down all the time; a bearish candle can form and then continue to go up. This is can be caused due to the smaller patterns are 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 what the short term patterns are telling, the trader needs to be able to see the larger patterns.
If using swing trading strategies or trading options, the trader needs to know if a breakout/breakdown of a larger pattern is about to occur. This changes the kind of trade; whether long or short.
Candlesticks forming the patterns give hints and warnings of a pattern breaking out or breaking down. Be sure to pay attention to what other traders are trying to say.
Technical analysis is an important part of trading. Support and resistance along with 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 those key support and resistance levels. Then when paired with indicators like moving average lines, RSI and MACD these can become useful tools.
Indicators like RSI (relative strength index) and MACD (moving average convergence divergence) tells when a stock is overbought, oversold, or moving into bullish/bearish territory.
Look to see where bearish harami patterns form in regards to 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.
How to Trade Bearish Harami Patterns
- 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 price breaks below the 2nd candlestick
- Place stop above the top of the 2nd candle
- Some traders take a long position once price breaks above 2nd candle
- Then place stop below the 2nd candle
Bearish harami patterns are bearish reversal 2 day patterns. Make sure to see what larger pattern it is inside of as well as indicator confirmation. Always wait for confirmation and never assume a reversal will happen without checking.