8th Day Chart Pattern / Bearish Harami Candlestick Pattern

           Bearish Harami Candlestick Pattern

The bearish harami is a two candlestick trend change signal that is potentially bearish if it occurs after an uptrend. According to Nison (1991, p. 80), the harami pattern is not as significant a reversal pattern as an engulfing pattern or hammer. A harami pattern is made up of a large candlestick followed by a small candlestick whose real body is between the real body of the first day’s large candlestick real body. During an uptrend, the real body of the first day is bullish and the second day’s small real body is bearish; however, the second day’s real body can be bullish as well. Nison (1994, p. 88) explains that after an uptrend when the second day’s small real body candlestick is toward the upper part of the first day’s real body, it is referred to as a high-price harami.
A related pattern is the three inside down pattern that is found at tops. The three inside down is a confirmed bearish harami pattern where the first day is a bullish candlestick followed by a small bearish candlestick with its price range within the real body of the first day. The additional day, the third day is a bearish candlestick that opens within or below the real body of the second day and then closes below the low of the first day’s bullish candlestick. Some traders only require that the third day close below the close of the second day.

Bearish Harami Cross Candlestick Pattern

A harami cross occurs when the second day is a doji rather than a small bullish or bearish real body. Nison (1991, p. 80) states that the harami cross should be viewed as a major reversal signal. Though the harami cross can occur after a downtrend, Nison suggests that the harami cross is more effective at tops (1991, p. 86).

Psychology of Bearish Harami

The significance of a harami pattern is illustrated next. During an uptrend, a long bullish candlestick appears, that likely makes a new high. It is clear that the bulls are in charge. However, the second day gaps down and moves slightly up and down throughout the day, but the candlestick ends up closing where the day opened. If the bulls were still in charge, the next day might have gapped up higher and made another new high for the uptrend, but it didn’t, the prices gapped lower and closed lower than the previous day. Therefore, the harami pattern suggests that prices could go downward or sideways in the short term because the bullish upward pressure has diminished.

Traits that Increase a Bearish Harami's Effectiveness

Nison (1994, p. 87) gives important traits that increase a harami’s importance:

• The more the real body of the second day is at the midpoint of the first day’s real body, the better the reversal of the trend. However, after an uptrend when the harami’s second day real body is toward the upper end of the first day’s real body, then the more likely prices will consolidate as opposed to reverse downward.
• The more the open, high, low, and close are within the prior day’s real body, the greater the chance of reversal.
• The smaller the shadows and real body of the second day and thus the more like a doji the second day is, the higher the probability of a full reversal.

Blended Candle Analysis of Bearish Harami = Shooting Star

Using blended candle analysis where the two days of the bearish harami pattern are combined into one day (open of day 1 candle to close of day 2 candle) is equivelent to a one candle shooting star candlestick. The shooting star is considered a bottom reversal candlestick pattern.

Harami Pattern Uptrend Consolidation and Resistance Example

Often a harami appears after a strong upward move when bulls pushed prices up too far and too fast. The chart above of Intel Corporation (INTC) shows two large gaps upward followed by a large bullish candlestick. However, the following day gapped lower to begin the day and ended the day even lower. The small real body of the second day of the harami pattern visually illustrated indecision. If a trader predicted that prices would consolidate or begin to fall, that trader would have been correct. Prices never surpassed the close of the first day bullish candlestick of the harami pattern. After the area of resistance illustrated by the blue line was tested and confirmed, prices began their downward retreat. The harami pattern above successfully predicted price consolidation and a reversal downward.

Harami Cross Top Example

A harami cross is shown above on the chart of Exxon Mobil (XOM). After about a 10% move higher and a large bullish candlestick that made a new high for the uptrend, a doji appears. Since a doji is a perfect example of indecision and since the open and close of the doji are lower than the close of the previous day’s bullish candlestick, the bulls should be worried that the trend is about to change, which on the chart above, shows that it did change to the downside.

Source :- http://www.finvids.com/Candlestick-Chart/Bearish-Harami-Pattern/

 

 

 

Harami (Inside Day) Candlestick Pattern – Bullish Harami, Bearish Harami

Bhargav Nanduri

What Is The Meaning Of Harami?

No, it is not the word used in Hindi language in this context. 😉 Harami means pregnant in Japanese. The candlestick pattern was named after it because of the way it looks. In English it is called as an Inside Day candlestick.

Formation Of The Harami Candlestick Pattern

It is formed by the combination of two candlesticks, one containing the other. First candle with long real body is compared to ‘mother’ and second candle with small real body is compared to ‘baby’ in the womb. Hence the name of the candlestick pattern! The second candle is generally opposite in color to the first candle.

Future of the baby is unknown. It may climb up the life or it may keep falling down the life. In other words, this candlestick pattern on charts shows indecision in the market. It can appear anywhere on the chart, i.e. at the end of a bull run/up trend or at the end of a bearish/down trend or along the ongoing trend.

 

 Psychology Behind The Harami Pattern:-
As the small real body of the second candle lies within the range of the long real body of the first candle, it shows indecision in the market. Also that the tug of war continued between bulls and bears through out the day but neither of them were really successful.

Types Of Harami Candlestick Patterns

There are two types of harami candlestick patterns – the bullish harami and the bearish harami.

Bullish Harami

The bullish harami pattern appears at the end of a down trend and signals a bullish trend reversal. The first candle is a long red/bearish candle making a new low as expected during bearish sentiment. But the next day, market opens at a price higher than the previous day’s close, creating a bit of panic among the bears. The price moves up due to short covering and fresh buying interest. However, at the high point of the day bears are again interested. At the end of the day, the price closes below the previous day’s opening price. Hence, the second candle is a green/bullish candle within the range (open – close) of the first candle.
The appearance of the green candle when least anticipated in the bearish trend, is expected to panic the bears and reverse the trend.

Bearish Harami

The bearish harami pattern appears at the top of an up trend and signals a bearish trend reversal. The first candle is a long green/bullish candle making a new high as expected during bullish sentiment. But the next day, market opens at a price lower than the previous day’s close, creating a bit of panic among the bulls. The price moves up down due to long unwinding and fresh selling interest. However, at the low point of the day bulls are again interested. At the end of the day, the price closes below the previous day’s closing price. Hence, the second candle is a red/bearish candle within the range (open – close) of the first candle.
The appearance of the red candle when least anticipated in the bullish trend, is expected to panic the bears and reverse the trend.

 Along the trend, it is a continuation pattern. Harami candlestick will keep appearing along the course of a trend, denoting a slow down before the price continues its journey as per the prior trend.

 Significance Of Harami Pattern

 If harami pattern is a part of NR4 (Narrow Range of 4 days) or NR7 (Narrow Range of 7 days), it will have more significance. It is a different trading strategy. The trading range for several days will be compressed like a spring and its breakout gives huge movement.

 In any case Harami candlestick pattern should alert you to be cautious. You should be prepared to cover your long or short position, or to establish a new position. All these action depends on the following day’s confirmation candlestick.

Source : -http://aimarrow.com/technical-analysis/harami-candlestick-pattern/