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Candlestick Pattern 3

Thursday, February 19, 2009 | Labels: , , , | |

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(3)Bearish Harami

Bearish Harami Pattern is a two-candlestick pattern composed of a small black real body contained within a prior relatively long white real body. “Harami” is an old Japanese word for “pregnant”. The long white candlestick is “the mother” and the small candlestick is “the baby”.

Recognition Criteria:

1. Market is characterized by an uptrend.
2. We see a long white candlestick on the first day.
3. Then we see a black candlestick on the second day whose real body is completely
engulfed by the real body of the first day. The shadows (high/low) of the second
candlestick do not have to be contained within the first body, though it's preferable if
they are.

Explanation:

The Bearish Harami Pattern is a sign of a disparity about the market’s health. Bull
market continues further confirmed by the long white real body’s vitality but then we
see the small black real body which shows some uncertainty. This shows the bulls’
upward drive has weakened and now a trend reversal is possible.

Important Factors:

It is important that the second day black candlestick has a minute real body relative
to the prior candlestick and that this small body is inside the larger one. The Bearish
Harami Pattern does not necessarily mean a market reversal. It rather predicts that
the market may not continue with its previous uptrend. There are however some
instances in which the Bearish Harami Pattern can warn of a significant trend change
- especially at market tops.

A confirmation of the reversal on the third day is required to be sure that the
uptrend has reversed. This confirmation may be in the form of a black candlestick, a
large gap down or a lower close on the next trading day (the third day)

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