What are bullish harami and bearish harami?
There are two types of harami patterns – the bullish harami and the bearish harami. The harami patterns both take into account two trading sessions. Here are the defining features of the harami candlesticks.
Bearish harami :
Inference: The bearish harami pattern occurs during an uptrend and is considered to be a sign of bearishness in the market. It is generally viewed as the turning point or as a reversal of a trend. Looking at the bearish harami, we can infer the following.
The first candle is usually longer than the second.
The two candles are generally of the opposite colours.
Bullish harami
The bullish harami is a bullish candlestick pattern that features two candlesticks, with the first one being a long red candle, followed by a much smaller green candle. The smaller green candle needs to be contained within the long red candle. The structure of the pattern looks like this.
Inference: The bullish harami pattern bears significance only when it occurs during a downtrend. It is considered to be a sign of bullishness in the market and can be construed as one of the turning points or a reversal of the trend.
The logic for bullish harami goes like this. The stock is in a bearish trend with its prices going down every trading session, and with the bears comfortably in a dominating position. The first long red candle in a bullish harami reinforces this logic.
The second short green candle indicates that the price of the stock opened at a much higher point than the previous day’s close with the bulls making a strong appearance in the market. Although the price of the stock was unable to close above the previous day’s open price, the stock ends on a positive note. As you can see from the reference pattern above, the green candle is shorter and is contained within the long red candle, confirming the presence of a bullish harami.
The sudden surge in the buying interest is completely unexpected by the market and ends up throwing off the bears. This renewed interest in buying the stock is likely to continue for the next few trading sessions, prompting a bullish reversal of the trend.
This candlestick pattern is quite the opposite of the bullish harami. Again, the bearish harami spans over two trading sessions. The first candle in this pattern is a long green candle, with the second one being a much shorter red candle. Just like in the bullish harami, the smaller candlestick is contained within the longer one. Here’s what a bearish harami looks like.
The stock is in a bullish trend with its prices rising every trading session, and with the bulls comfortably having the upper hand in the market. The first long green candle in a bearish harami reinforces this logic.
The second short red candle indicates that the price of the stock opened at a much lower point than the previous day’s close with the bears making a strong appearance in the market. The stock ends on a negative note with the prices closing above the previous session’s open price.
In this case, the sudden surge in the selling interest is completely unexpected by the market and ends up throwing off the bulls. This sudden intense selling pressure in the stock is likely to continue for the next few trading sessions, prompting a bearish reversal of the trend.