Bearish Harami Candlestick Patterns – Formation and Trading Plan
Bearish Harami Candlestick Pattern: Technical analysis is a method of predicting future price movements using historical market data, focusing primarily on price and volume. Candlestick patterns are a visual representation of price activity over a period of time. These patterns, created by open, high, low and close prices, provide information about market sentiment and future trend reversals or continuations.
Candlestick patterns provide important information about market dynamics and future trading opportunities, helping traders make informed decisions about buying and selling stocks. In this article, I will explain a candlestick pattern called the bearish Harami candlestick pattern.
Bearish Harami Candlestick Pattern – Definition
The bearish harami candlestick pattern is a two candlestick pattern that indicates a stock price reversal to the downside. The bearish harami candlestick pattern consists of a large bullish candle (green candle) and a large bearish candle (red candle).
Here a red candle is formed within the body of the first candle. This means that the high and low prices of the red candle are within the opening and closing price range of the first candle. It is advisable to establish an uptrend before forming this pattern, as the previous trend increases the likelihood of a downside reversal.
Note: If you want to learn candlestick and chart trading from scratch, here are some of the best books available on Amazon! Get the book now!
Bearish Harami Candlestick Pattern – Meaning
The bearish Harami candlestick pattern indicates a bearish reversal, so it is recommended that this pattern be formed at the top of an uptrend. The first candle formed by this pattern is a long green candle. This is because as stock prices rise, buying pressure increases.
The second candle opens lower than the closing price of the first candle. This candle closes below the opening price, forming a red candle. Moreover, during that period, the stock price will never be higher than the closing price of the first candle or lower than the opening price of the first candle. In other words, there is a red candle inside a green candle.
These red formations indicate that sellers are gaining momentum in the stock and indicate that the uptrend is likely coming to an end. This could result in retained earnings, which could cause the stock price to fall further. Therefore, the formation of this pattern usually signals bearish momentum in the stock price.
Also read…
Bearish Harami Candlestick Pattern – Strengths
There are several situations where the formation of a Bearish Harami candlestick pattern provides a stronger bearish reversal signal.
- Formation near resistance zone: The formation of a bearish harami pattern near a resistance zone is a strong indicator that stock prices may fall. This is because there may already be multiple sell orders in that zone, and once this pattern is formed, the likelihood of a bearish reversal increases.
- RSI in overbought zone: An RSI level above 70 indicates that the stock is overbought. The formation of a bearish harami pattern with RSI levels (above 70) increases confidence in a bearish reversal.
Bearish Harami Candlestick Patterns – Trading Plan
Traders must ensure that the previous trend before forming this pattern was an uptrend. If this pattern forms in an uptrend, here are some guidelines for trading:
- entry: In this pattern, traders can make a short entry if the price of the security falls below the opening price of the first candle.
- Target: Traders can exit a trade when the security’s price reaches near an immediate support zone. Once this level is reached, you can also book a partial profit on the trade and hold the remaining position until the next support level.
- Stop Loss: Traders can set a stop loss near the closing price of the first candle in this pattern.
Bearish Harami Candlestick Pattern – Example
In the 1-day chart of INFOSYS LTD. above, you can see a bearish harami candle pattern forming at the top of an uptrend. As discussed in this article, the stock price has been trending lower since this pattern was formed.
At the time this pattern was formed, traders could make a short entry when the stock price started trading below Rs.1596.65 and the stop loss was at Rs. 1617.45
Difference between Bearish Harami Pattern and Bearish Harami Cross Pattern
The bearish harami candlestick pattern is defined by two candles, the second of which is a proper red candle that forms inside the first candle. However, in the bearish Harami Cross candlestick pattern, the second candle is the Doji candle. The formation of a bearish harami candlestick pattern is a slightly stronger bearish reversal signal as a proper red candle in the second position indicates higher selling pressure, while the doji indicates equal buying and selling pressure.
Read more: Basic analysis of Ultratech cement
conclusion
In conclusion, the bearish Harami candlestick pattern serves as a powerful signal for traders looking to navigate volatile markets. This pattern, which appears as small bearish candles intertwined inside a large bullish candle, suggests the possibility of a reversal.
However, as with all trading signals, it is important to consider additional factors and use risk management strategies. By incorporating the bearish harami pattern into their trading arsenal, traders can improve their ability to capitalize on market fluctuations and optimize trading results.
Written by Praneeth Kadagi
By leveraging the Stock Screener, Stock Heatmap, Portfolio Backtesting and Stock Comparison tools on the Trade Brains portal, investors have access to comprehensive tools to identify the best stocks, stay informed and updated with stock market news. invest.
Start your stock market journey now!
Want to learn stock market trading and investing? Check out exclusive stock market courses from FinGrad, a learning initiative from Trade Brains. You can sign up for free courses and webinars from FinGrad and start your trading career today. Sign up now!!
