Harami Patterns
The Bullish Harami Pattern
The Bullish Harami is a two candle pattern forming in a down trending price pattern.
The body of the first candle is the same color as the current trend and should be a long black candle.
The body of the second candle is white and opens and closes within the body of previous day's candle.
Rules:
- The down trend has been fairly consistent for a period of time. A long black candle occurs at the end of the trend.
- The body of the first candle is black, the body of the second candle is white.
- The second day opens higher than the close of the previous day and closes lower than the open of the prior day. (i.e. the body of the second candle is contained entirely within the body of the first candle).
- Further confirmation is required to indicate a reversal signal. The Bullish Harami Pattern is a good indication of a possible reversal, pending confirmation. Wait another day. A confirmation may come in the form of a Three Inside Up pattern.
Signal Strengtheners:
- The longer the black candle and the white candle, the more potential of a reversal occuring.
- The higher the white candle closes up on the black candle, the more likely that a reversal has occurred despite the size of the white candle.
- The higher volue during the Harami days, the more likely a reversal is occuring due to swapping positions.
General Analysis:
After a strong downtrend the Bulls step in and open the price higher than the previous day's close. This concerns the Bears and the shorts start covering their postions. The price finishes higher for the day. A strong day after that would be key that the trend may be in a reversal.
The Bearish Harami Pattern
The Bearish Harami pattern is a two candle pattern forming in an uptrending price pattern.
The body of the first candle is the same color as the current trend and should be a long white candle.
The body of the second candle is black and opens and closes within the body of the previous day's candle.
Rules:
- The upward trend has been fairly consistent for a period of time.
- The body of the first candle is a long white candle, continuing the current trend.
- The second day opens lower than the close of the previous day and closes higher than the open of the prior day. (i.e. the body of the second candle is contained entirely within the body of the first candle).
- Further confirmation is required to indicate a reversal signal. The Bearish Harami Pattern is a good indication of a possible reversal, pending confirmation. Wait another day. A confirmation may come in the form of a Three Inside Down pattern.
Signal Strengtheners:
- The longer the white candle and the black candle, the more potential of a reversal occuring.
- The higher the black candle closes down on the white candle, the more likely that a reversal has occurred despite the size of the black candle.
- The higher volue during the Harami days, the more likely a reversal is occuring due to swapping positions.
General Analysis:
The market trend was on its way up. The stronger the uptrend, the more investor sentiment changes to fear of the end of the trend. The market gets overbought and the bulls are starting to take profits or sell off out of fear. The next day the bears start to take short positions while the bulls are selling off, and the price for the day finishes lower. The Bulls continue to take profits as the Bears continue to short.
