The Japanese candlestick shape known as the Harami candle can indicate trend reversals and provides crypto-currency traders with a favourable risk-to-reward trading arrangement. Two candles make the pattern: one is quite tall, while the other is somewhat shorter.
Any period can contain Harami patterns. Once you feel confident in recognizing them, exchanging them is relatively simple.
What is a Harami candlestick pattern?
Two candles make up the reversal pattern known as the Harami candlestick formation. The first candle is tall and continues a trend, but the second candle is noticeably shorter and of a different hue, indicating a change in the trend. This is because the first candle’s body must fully envelop the second candle’s body.
The Japanese candlestick pattern known as the Harami is very well-liked among crypto-currency traders. This is because it’s simple to identify and offers traders a narrow risk window. As a result, trading the Harami pattern typically results in a favourable risk-to-reward ratio.
There are two types of this candlestick pattern:
- Bearish Harami Candlestick Pattern
- Bullish Harami Candlestick Pattern
In this article, learn more about the bearish harami candlestick pattern.
Bearish Harami Candlestick Pattern
It is a two-bar candlestick pattern known as the bearish Harami. Harami is the Japanese word for “pregnancy.” The first mother candle in the harami pattern is large and engulfs the second baby candle.
The bearish Harami Candlestick is a bearish reversal pattern that indicates the conclusion of a downward trend. A bearish harami consists of two candles, the first of which is bullish and the second of whose body is constrained inside the previous candle’s range. Then, at the peak of an uptrend, it happens.
Read more: Trade with bullish harami candlestick pattern
How to recognize a bearish harami candlestick pattern
The necessary conditions for a bearish harami pattern are as follows:
- First, a long bullish actual body must be present on the first candle.
- Second, the first candle consumes the second.
- Third, the recurring pattern has to be ascending or uptrend.
At the peak of an uptrend, there will be a bearish Harami. A long, bullish green candle appears first in the pattern, followed by a smaller bearish or red candle. The second candle must gap lower to indicate that the former uptrend has weakened, a crucial element of the bearish Harami pattern.
Trading occurs continuously in the crypto-currency market, day and night, every day of the week. As a result, gaps up or down in the price of crypto-currency are rare.
Knowing this, watch for the opening of the second bearish candle before selling off. The first candle’s body must entirely envelop the second candle’s body. This is crucial to the Harami pattern because it indicates uncertainty and a possible trend change. After all, prices are so low that they cannot return to a bullish momentum to the prior high.
Examples
What does a Bearish Harami Candlestick Pattern Signals?
Every candlestick represents market prices in the same manner that it represents market sentiment at a particular movement. As a result, we can at least comprehend what the market has been doing. Naturally, one should take this interpretation with a grain of salt. Knowing precisely what a call has done is very difficult, if possible. Nevertheless, it’s a fantastic approach to exploring and evaluating marketplaces.
Market sentiment is positive when the pattern’s initial bullish candle appears. The market is expected to rise upward, and market moves are determined by purchasing pressure. While the bullish candle’s finish indicates that the bullish trend will continue, purchasers are concerned that a trend reversal will eventually follow the recent price gains. Sellers begin by moving the opening of the next candle below the closure of the preceding bar.
For the remainder of the trading day, buyers and sellers are equally powerful and cannot influence the market significantly. Both buyers and sellers lost the battle as the market closed roughly where it began. The mood changes when the market opens the next day, and more buyers adopt a hostile stance due to detecting the bearish harami signal. The result is that the negative trend has begun.
4 Bearish Harami Cross Signs
- Usually arises when there is an upward trend.
- Warning signs that the trend is changing from upward to neutral or negative.
- The first candle has a full body colour of green. This indicates that the green candle is noticeably big.
- The second candle is fashioned like a red Bearish Doji, which denotes that it stays inside the green candle’s range and has a cross-like form.
Trade with the Bearish Harami Candlestick Pattern
The Harami pattern’s potent signal generation is one of its advantages. In addition, these trends are simple to recognize, which can result in excellent risk-to-reward chances. You can discover a step-by-step guide on identifying and trading both varieties of Harami patterns below.
Bullish means reversion trading strategies are used in the crypto-currency and stock markets. In contrast, bearish mean reversion trading strategies are used in the Forex market to trade the bearish Harami.
Bearish Harami Bullish Mean Reversion Trade Setup
To review recognizing the bearish Harami, we look at the daily NVidia (NVDA) chart for August 16, 2021. Despite being close to the 50-day simple moving average, the stock price is rising. A lengthy bullish variation is followed by a bearish candle, the body of which is entirely consumed by the first.
Once the pattern is established, knowledgeable data-driven traders wait for the price to pass below the pattern low before entering long positions with a stop loss of one ATR when prices retrace through that low. Let’s use the NVidia example from above to clarify this.
On the second day, at $194.53, the bearish harami pattern’s bottom is reached. The price falls under the low of the pattern the next day. The mean reversion trader must now wait for the price to rise above the low of $194.53 before making a long entry. Traders might enter at $194.53 and make a significant profit if this happened on the same day.
Bearish Harami Bearish Mean Reversion Trade Setup
Similar to the bullish mean reversion scenario, the bearish mean reversion arrangement operates in the opposite direction. Since we have already put the bearish Harami, we won’t recognize it again.
In contrast to crypto-currency and stock traders, forex traders seek to win. After identifying the pattern, traders will watch for a breach of the pattern’s high before entering short when the price retraces through that high.
To demonstrate this, we’ll use the preceding Canadian dollar chart. The pattern’s peak is established at $0.8016 on the first day. On April 21, 2021, the price rose above and below the pattern high, prompting an entry and a trader using data-driven strategies to take profit within one or two bars.
Bottom line
Investors in crypto-currencies frequently use Bearish Harami candlestick patterns. As a result, the Bearish Harami pattern is regularly seen in crypto-currency markets, and trading it is simple.
The limited risk range and favourable profit possibilities that the Harami pattern provides appeal to traders. However, the pattern only ensures profitable trades like any other technical analysis technique. Therefore, the bearish Harami pattern should be sought within the context of the appropriate trend. In addition, its use should be combined with other trading techniques for the most significant outcomes.
