BEARISH HARAMI
Definition
This pattern comprises a large white candlestick followed by a smaller black candlestick that is entirely contained within the range of the previous white candlestick. The pattern resembles a pregnant woman when outlined, hence the name. "Harami" is a Japanese term that means "pregnant." In this context, the larger white candlestick is referred to as the "mother," while the smaller black candlestick is the "baby."
Recognition Criteria
1. The market is currently defined by a dominant upward trend.
2. A white body is observed on the first day.
3. The black body that is formed on the second day is completely engulfed by the body of the first day.
Pattern Requirements and Flexibility
The pattern consists of two candlesticks, in which the first day’s white candlestick engulfs the following day’s black candlestick. The first one should be a normal or a long white candlestick. Either the body tops or the body bottoms of the two candlesticks may be at the same level, but whatever the case, the black body should be smaller than the preceding white body.
Trader’s Behavior
The Bearish Harami is indicative of potential market weakness. In an uptrend characterized by bullish sentiment, a large bullish candlestick (white body) suggests significant buying activity, further reinforcing the bullish outlook. However, the following day’s candlestick opens lower or at the previous day’s close and remains within a narrow range, ultimately closing lower but still within the previous day’s body. This sudden shift causes traders to question the market’s strength, reflecting growing concerns over the potential reversal.
Sell/Stop-Loss Levels
The confirmation level is determined by either the last close or the midpoint of the first white candlestick, whichever is lower. For confirmation, prices should fall below this level.
The stop-loss level is defined as the higher of the last two highs. Following the bearish signal, if prices rise instead of falling and either close above or make two consecutive daily highs above the stop-loss level, without detecting any bullish pattern, the stop-loss is triggered.