Bullish Harami and Bearish Harami Pattern

The “Harami” pattern is a small real body formed within the range prior relatively longer body. It is a Japanese word meaning “pregnant”. The longer body is “the mother” candle and the smaller one is the “baby” candle.

This is a candlestick pattern used by technical analysts to identify potential trend reversals in the market. The Harami pattern can be either bullish or bearish, depending on the direction of the trend and the color of the candlesticks. If you know about engulfing patterns then it is just the opposite. How? In an engulfing pattern, the longer candle is formed in front of the shorter candle but in this case, it is just the reverse the shorter candle is formed in front of the longer candle.

The harami pattern is just the opposite of the engulfing pattern but works exactly the same, whichever candle is at the front the prices move in that direction.

Bullish Harami Pattern

A bullish Harami pattern occurs during a downtrend and consists of a long red candlestick followed by a smaller green candlestick. The green candlestick should be completely contained within the range of the previous day's red candlestick. This pattern suggests that the bears are losing their grip on the market and that the bulls may be taking control. The smaller green candlestick is seen as a sign of indecision or consolidation as buyers start to step in and take control, pushing the price up.

Example

Here, we have taken the Godrej Properties chart on a daily time frame. After a bearish trend, there was a bullish harami formation at the bottom of the chart with one long bearish candle followed by a green spinning top candle. There was a strong upward momentum in the stock giving traders/investors a good return of about 26%.

NOTE: Do not get confused by the long green candle inside the mark. You must be wondering if it is also a harami pattern (bearish), yes it is and the pattern got rejected when the green candle was formed within the range of the red candle.

Bearish Harami Pattern

The bearish Harami is a two-candlestick pattern that can indicate a potential trend reversal in a bullish market. It consists of a long green candlestick followed by a smaller red candlestick that is contained within the range of the previous day's green candlestick. The smaller red candlestick of the bearish Harami pattern indicates a pause in the bullish trend and suggests that the bears may be gaining some control. This can be a signal for traders to consider selling or taking short positions in anticipation of a potential downward trend.

The psychology behind the bearish Harami pattern is that it represents a shift in market sentiment from bullish to potentially bearish. It indicates that the previous buying pressure is losing steam, which could lead to a potential shift in momentum in favor of the bears. This can be a signal for traders to consider selling or taking short positions in anticipation of a potential downward trend.

Example

With the same above chart of Godrej Properties, on the 1st of June 2022, a bearish harami was formed. Traders/investors who would have taken a short position could have easily captured a 15%-16% within weeks.

However, it's important to note that the bearish harami or bullish harami pattern is not a guaranteed signal of a trend reversal and should be used in conjunction with other technical analysis tools and market factors to identify potential trading opportunities.

Key Takeaways

• The Harami pattern is a candlestick pattern used by technical analysts to identify potential trend reversals in the market.
• The pattern consists of a smaller real body formed within the range of a relatively long body.
• A bullish Harami pattern occurs during a downtrend and can indicate that the bears are losing their grip on the market and that the bulls may be taking control.
• A bearish Harami pattern occurs during a bullish market and can indicate a potential trend reversal in favor of the bears.
• The psychology behind the bearish Harami pattern is that it represents a shift in market sentiment from bullish to potentially bearish.
• The Harami pattern should be used in conjunction with other technical analysis tools and market factors to identify potential trading opportunities as it is not a guaranteed signal.