A Bearish Harami is a two bar Japanese candlestick pattern that suggests prices may soon reverse to the downside. The pattern consists of a long green candle followed by a small red candle. The opening and closing prices of the second candle must be contained within the body of the first candle. An uptrend precedes the formation of a bearish harami.
Bearish Harami Pattern is formed near a resistance or at the end of an uptrend. This pattern is a trend reversal type and its reliability is low if watched alone. However if considered with other technical indicator may a strong signal for the investors. This pattern is composed of two candlestick, formed on two consecutive days.
A bearish harami received its name because it resembles the appearance of a pregnant woman. “Harami” is the Japanese word for pregnant. The size of the second candle determines the patterns potency; the smaller it is, the higher the chance there is of a reversal occurring. The opposite pattern to a bearish harami is a bullish harami, which is preceded by a downtrend and suggests prices may reverse to the upside.
Formation of Bearish Harami Pattern
A bearish Harami occurs when there is a large bullish green candle on Day 1 followed by a smaller bearish or bullish candle on Day 2. The most important aspect of the bearish Harami is that prices gapped down on Day 2 and were unable to move higher back to the close of Day 1. This is a sign that uncertainty could be entering the market. Bearish Harami pattern is considered to be a signal of trend reversal, giving investors indication that the bull is weakening and there is a possibility of bear to take over the market.
For Bearish Harami pattern to be formed it is very important that:-
- The open price of the Day2 candlestick is lower than the close price of Day1 candlestick.
- The close price of the Day 2 candlestick is Higher than the open price of Day 1 candlestick.