A bearish harami is a two-candlestick pattern used in technical analysis that signals a potential reversal from an uptrend to a downtrend. The word “harami” comes from the Japanese word for “pregnant,” as the second candle in the pattern is smaller and fits inside the previous larger candle, resembling a pregnant figure.

How Bearish Harami Candlestick Pattern Works:

1. First Candle (Bullish): The first candle is a large bullish (upward) candlestick, indicating that buyers are in control, and the uptrend continues.
2. Second Candle (Bearish): The second candle is a smaller bearish (downward) candlestick that is entirely contained within the body of the first candle. This means the open and close of the second candle are within the range of the first candle’s body.

The bearish harami pattern suggests that the buying momentum is weakening, and sellers may be stepping in. While it does not guarantee an immediate reversal, it signals indecision and the possibility of a shift in market sentiment. Traders often use this pattern as an early sign that the uptrend could be coming to an end and that a downtrend may follow.

Psychology behind bearish harami candlestick pattern

The psychology behind the bearish harami candlestick pattern reveals a shift in market sentiment from bullish to bearish, signaling a potential reversal in an uptrend. Here’s a breakdown of the psychological aspects of the pattern:

1. The First Candle (Bullish):

• The first candlestick in the bearish harami is a large bullish (upward) candle, indicating that buyers are in control and the uptrend is continuing.
• At this point, the market sentiment is positive, and buyers feel confident about the upward momentum, expecting prices to rise further.
• The large bullish candle reinforces this optimism, encouraging traders to hold onto their long positions or even add more.

2. The Second Candle (Bearish):

• The second candle is a smaller bearish (downward) candle that forms completely within the body of the previous bullish candle.
• This small bearish candle signals a loss of momentum among buyers. It indicates that sellers have started to enter the market, but they are not yet in full control.
• The small size of the second candle reflects indecision in the market. Buyers are no longer pushing the price higher, and sellers are gaining some ground, but neither side is dominant yet.

How to trade bearish harami candlestick pattern

Trading the Bearish Harami candlestick pattern involves identifying the pattern and confirming it with additional signals or indicators. Here’s a step-by-step guide on how to trade this pattern effectively.

Identify the Bearish Harami Pattern:

• The pattern occurs during an uptrend and consists of two candles:
  • The first candle is a large bullish (upward) candle, showing strong buying pressure.
  • The second candle is a smaller bearish (downward) candle that forms within the body of the first candle, indicating weakening buying momentum and the possibility of a reversal.

2. Wait for Confirmation:

• The Bearish Harami is considered a reversal signal, but it’s important to wait for confirmation before entering a trade. Confirmation typically comes with the next candle closing lower than the second candle in the pattern.
• If the next candle closes below the low of the second candle, it suggests that sellers are gaining control, confirming the potential reversal.

3. Entry Point:

• Aggressive Entry: Some traders enter a short position immediately after the Bearish Harami pattern forms. This approach is riskier but allows you to enter the trade earlier.
• Conservative Entry: A more cautious approach is to wait for the next candle to close below the second candle’s low. This confirmation ensures that the trend is indeed reversing before entering the trade.

4. Set Stop-Loss:

• Place a stop-loss just above the high of the first bullish candle in the Bearish Harami pattern. This protects your trade in case the reversal fails and the uptrend resumes.
• For a more aggressive trade, the stop-loss can be placed just above the second, smaller candle.

5. Use Additional Indicators for Confirmation:

To increase the accuracy of the trade, you can use other technical indicators alongside the Bearish Harami:

• Moving Averages: If prices are below a key moving average, it confirms the downward momentum.
• RSI (Relative Strength Index): If the RSI is in overbought territory (above 70), it further strengthens the bearish signal.

Example of Trading a Bearish Harami

1. The market is in an uptrend.
2. You spot a Bearish Harami pattern: the first candle is a large bullish candle, and the second is a smaller bearish candle.
3. You wait for the next candle to close below the low of the second candle, confirming the pattern.
4. You enter a short position.
5. Set your stop-loss just above the high of the first candle.
6. Set your take-profit at the nearest support level or trail your stop-loss as the price drops.https://myntr.it/yiJBBqm