BEARISH HARAMI
Definition
This pattern consists of a white body and a small black body that is completely inside the range of the white body. If an outline is drawn for the pattern, it looks like a pregnant woman. This is not a coincidence. “Harami” is an old Japanese word for “pregnant”. The white candlestick is “the mother” and the small candlestick is “the baby”.
Recognition Criteria
1. The market is characterized by a prevailing uptrend.
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 previous white body.
Trader’s Behavior
The Bearish Harami is a sign of disparity in the market’s health. The market is characterized by an uptrend and a bullish mood, and there is heavy buying indicated by a white body, which further supports the bullishness. However, the next day prices open lower or at the close of the preceding day and stay in a small range throughout the day, closing even lower, but still within the previous day’s body. Traders are now concerned about the strength of the market, due to this suddenly deteriorating trend.
Sell/Stop Loss Levels
The confirmation level is defined as the last close or the midpoint of the first white body, whichever is lower. Prices should cross below this level for confirmation.
The stop loss level is defined as the higher of the last two highs. Following the bearish signal, if prices go up instead of going down, and close or make two consecutive daily highs above the stop loss level, while no bullish pattern is detected, then the stop loss is triggered.