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Bearish Harami Candlestick Pattern

day 1 long bullish candle, day 2 small bearish candle

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

first day is a long bullish candlestick followed by a doji

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 second day candlestick suggests hesitation after an uptrend

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

a 2 day bearish harami is a one day 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

the harami pattern creates an area of resistance on the candlestick chart

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

the harami cross creates an area of future resistance

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.

Works Referenced

  1. Kirkpatrick II, C.D., & Dahlquist, J.R. (2010). Technical Analysis: The Complete Resource for Financial Market Technicians (2nd ed.). Upper Saddle River, NJ: FT Press.
  2. Rockefeller, B. (2011). Technical Analysis For Dummies (2nd ed.). Hoboken: John Wiley & Sons.
  3. The Pattern Site. (2008). Bulkowski's Measure Rule. Retrieved June 1, 2012, from http://thepatternsite.com/measure.html