Technical Analysis: Bearish Harami – Definition, How it Works, Types, Calculation, and Trading
In the world of technical analysis, recognising early signs of trend reversals is crucial. One of the most well-known candlestick patterns for this purpose is the Bearish Harami. This two-candle formation may seem simple, but it carries significant weight when it appears at the top of an uptrend.
Whether you’re an intraday trader or looking for swing opportunities, understanding how to spot and trade this pattern effectively can give you an edge.
What is Bearish Harami?
The Bearish Harami is a two-candle pattern in Japanese candlestick analysis that suggests a potential shift from a bullish trend to a bearish one. It usually forms at the top of an upward price movement.
The setup includes a large green candlestick, followed by a smaller red one that stays entirely within the range of the first candle’s body.
What Does Bearish Harami Indicate?
This pattern signals that the prevailing upward momentum may be weakening. The second, smaller bearish candle enclosed within the first indicates hesitation and a possible shift toward selling pressure.
It acts as an early warning that the trend could reverse, but should be validated with other indicators like RSI or MACD.
What are the key characteristics of the Bearish Harami pattern?
- A large bullish (green) candlestick reflecting strong upward momentum.
- A smaller bearish (red) candlestick entirely within the body of the first candle.
- Typically appears at the top of an uptrend.
- Signals a pause or hesitation in the current trend and a potential reversal.
How does the Bearish Harami pattern help traders find entry and exit?
Entry Points: Traders enter a short position below the low of the second candle once the pattern is confirmed.
Exit Points: Stop-loss is placed above the high of the first candle. Profit targets are based on support zones or moving averages.
What are the limitations of the Bearish Harami pattern?
- False Signals: The pattern can suggest reversals that don’t occur.
- Limited Context: Doesn’t reflect broader market conditions.
- Not Standalone: Needs confirmation from other indicators for reliability.
What Is the Psychological Explanation of Bearish Harami?
The first large green candle shows buyers in control. The second smaller red candle signals loss of momentum and potential entry of sellers.
This shift reflects uncertainty and weakening bullish sentiment, often preceding a bearish move.
Why Are Volume and Movement Important for Bearish Harami?
Volume helps validate the pattern. Rising volume on the second candle suggests increasing selling pressure. If the first candle’s volume declines while the second’s rises, the reversal signal becomes more trustworthy.
What are the Different Types of Candlestick patterns aside from Bearish Harami?
Bullish Reversal Patterns:
- Bullish Harami: Small green candle within larger red candle body.
- Bullish Engulfing: Large green candle engulfs smaller red candle.
- Hammer: Small body, long lower shadow at downtrend bottom.
- Morning Star: Three-candle pattern showing transition to bullish control.
- Piercing Line: Bullish candle opens low and closes above the midpoint of previous bearish candle.
Bearish Reversal Patterns:
- Bearish Engulfing: Large red candle engulfs smaller green one.
- Evening Star: Bullish candle → small-bodied candle → bearish candle.
- Dark Cloud Cover: Red candle closes below midpoint of prior green candle.
- Shooting Star: Small body, long upper wick at the top of an uptrend.
Neutral or Continuation Patterns:
- Doji: Open and close nearly equal, signaling indecision.
- Spinning Top: Small body with long shadows, indicating a market tug-of-war.
Conclusion
The Bearish Harami is a classic signal that the bulls may be losing momentum—and that sellers could soon take control. When confirmed with volume and supporting indicators, it can offer a reliable setup for short trades.
TradeSmart provides tools to detect and confirm patterns like this, helping traders make more informed decisions in volatile markets.
