Bearish & Bullish Harami Patterns by Mark Deaton

 

Both the bullish and bearish harami candlestick patterns are amongst the most consistent and most popular signals available to the trader. They tend to appear towards the end of an uptrend or downtrend and suggest that the next market movement will be in the opposite direction. They are simple to recognize and occur fairly frequently which makes them particularly popular with novice traders.

Sometimes remembering the shape and formation of the various candlestick patterns can be a tricky job because there are so many of them. Often candlestick patterns can look very similar to one another and having the ability to distinguish the difference between them all is key for the most correct analysis. Fortunately for traders the harami signals are especially noticeable and this is partly due to their name. Harami is the Japanese word for pregnant and if a trader can remember this, they will remember the formation of the pattern easily because it looks vaguely similar to a pregnant woman.

The bullish and bearish harami patterns are both the same in nature but occur at the end of different trends. The bullish harami can often be seen at the end of a downward trend and with the pregnant woman comparison it becomes easy to spot. The first characteristic a trader must look out for is a candlestick with a long candle following the downward trend. The body of this candle must show that the closing price is lower than the opening price. The second characteristic to complete the pattern is a following candlestick that must have a body which is engulfed by the previous candlestick. Ideally the shadows of the second candlestick should also be engulfed by the body of the first to make the pattern more reliable. The second candlestick must also close at a higher price than it opened. The idea behind this formation is that the initial long candlestick is the mother whilst the second shorter candlestick that bucks the trend is the baby. When presented next to each other the candlesticks look like a pregnant mother.

When this pattern has been distinguished it is probable that the downtrend will stop and the direction of the market will reverse. It indicates that selling has stopped and investors are now likely to start buying. On the other hand the bearish harami can often be seen at the other end of the scale. In order for a bearish harami to be successfully recognized there must be a strong uptrend present. The initial candlestick from the pattern must follow the uptrend and contain a long body whilst the second candlestick should go in the opposite direction of that price. The body of the second candlestick must also be engulfed by the first and its shadows should ideally be too. Essentially the bearish harami is just the bullish harami in reverse and it serves to suggest the market direction is likely to change and head in a bearish direction. When a trader notices either of these patterns it is a good time to enter the market.

 

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