Business, Legal & Accounting Glossary
The Bearish Harami candlestick formation is a two-day pattern that has a small body day completely contained within the range of the previous body and is opposite in direction. The Harami is bearish when there is a large bullish candle on Day 1 followed by a smaller bearish candle on Day 2.
The Bearish Harami is similar to the Bearish Engulfing Pattern, except that day 2 of the Harami trades inside the day 1 body. This is in contrast to the Bearish Engulfing Pattern where day 2 range is outside the day 1 range both in high and low price. In range-bound markets, the Bearish Harami will occur frequently with little significance. But if this pattern occurs after an uptrend, it takes on greater significance. If the Bearish Harami does turn out to be a reversal pattern then the high of the two candles will likely turn into a significant resistance level.
The bearish harami is a candlestick charting pattern — it is a bearish reversal pattern. A typical bearish harami is characterized by one long candle and a much shorter candle which is completely engulfed by the large candle. Some traders prefer that the large candle engulfs the shadows as well as the body of the short candle, but other traders do not view this as necessary. The candles in a bearish harami pattern can be of any colour combination (e.g. black/black, black/white, white/black, white/white). However, some market technicians believe that the reliability of a bearish harami signal is increased when the first candle is black (i.e. black/black, black/white) or when the size of the second candle is minimal. When a bearish harami occurs after an uptrend, it suggests that the upward momentum for a security is weakening. Often, however, the bearish harami is regarded as a weak signal. Indeed, the bearish harami can mimic small pullbacks commonly seen during an uptrend. Traders will look for confirmation on the days following the bearish harami to validate the pattern and determine whether the trend is down or sideways.
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This glossary post was last updated: 23rd March, 2020 | 4 Views.