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. Watch our video on how to identify and trade bearish harami patterns.
What Is a Bearish Harami Pattern & How to Identify These Patterns?
A bearish harami pattern consists of two candlesticks that form near resistance levels where the 2nd candle fits inside the larger 1st bullish candle. Typically, when the 2nd smaller candle fits inside the first, price causes a bearish reversal.
These patterns are two day candlestick patterns found on stock charts. The bearish harami pattern suggests that a downtrend is coming. Watch our video above to learn how to trade them. Bearish harami’s are a common bearish signal and learning how to spot them is pretty important. Stock charts are made up of single candlesticks, 2 and 3 day candlestick patterns as well as the big ones.
A single candlestick shows you how traders from all over the word felt about a stock that day. Then you add on two and three day patterns and you start getting a clearer picture of the feelings.
Then you zoom out and see the big patterns such as symmetrical triangle patterns, ascending triangle patterns and descending triangle patterns. Those big triangle patterns give you an even clearer picture of a stocks direction along with providing key support and resistance levels.
Being able to read charts and understand candlesticks and patterns are one of the most important aspects of trading. Read our post on how to read stock charts for beginners if you need to know more.
Basics of Bearish Harami Patterns
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 isn’t specified. Sometimes a bearish harami appears after a short uptrend. Other times it occurs at the end of a long uptrend (try our stock picks service free for 14 days).
The word harami is Japanese for pregnant. If you draw an outline of the 2 candlesticks it looks like a pregnant woman. Hence the name bearish harami. It’s a bearish pregnancy.
In other words, the conclusion of the “pregnancy” produces a new trend. Since this pattern is a reversal pattern, when you see it, it may be a good time to close out any long positions you’re in. Then you can go short or buy put options to capitalize on the reversal.
As always, make sure you get 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’s why you need to know technical analysis, candlesticks and patterns. We teach how to trade bearish harami patterns on our live daily streams. Check out our trading service to learn more.
Technicals of Bearish Harami Patterns
By now you know that patterns break down all the time. A bearish candle can form and then continue to go up. This is because the smaller patterns are also 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 you, you need to be able to see the larger patterns.
If you’re using swing trading strategies or trading options for a living, you need to know if a breakout or breakdown of a larger pattern is about to occur. This changes the kind of trade you’ll make whether long or short.
Candlesticks forming the patterns give you hints and warnings of a pattern breaking out or breaking down. Be sure to pay attention to what other traders are trying to say.
Pair Bearish Harami’s with ABCD patterns for a more solid strategy.
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. When you couple that with indicators like moving average lines, RSI and MACD you get pretty good tools.
Indicators like RSI (relative strength index) and MACD (moving average convergence divergence) tell you when a stock is overbought, oversold or moving into bullish or 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 (bookmark our stocks list page which is updated daily).
How to Trade Bearish Harami Patterns
- 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 you see what larger pattern it’s inside of as well as indicator confirmation. By the same token, never assume a reversal will happen without checking. You want to make money not lose it. Take our free online trading courses.