Whether the pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Harami Bullish Pattern) or an uptrend (Harami Bearish Pattern).
Basically, these patterns consist of 2 candles:
The first day is characterized by a long body candle, followed by a candle whose body is completely contained within the range of the previous day's body.
These patterns imply that the momentum of preceding trend may have ceased or slowed down significantly, signaling a possibility of reversal.
Note:
Don’t confuse this pattern with the Engulfing Pattern. The candles in these patterns are actually just the opposite of the Engulfing Pattern.
HARAMI BULLISH PATTERN
Harami Bullish is a bottom reversal pattern / bullish reversal pattern.It can be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.
When the price is a declining trend for some time, a two-candle pattern forms.
The body of the 1st candle is the same color as the current trend (should be a long black/red candle).
The body of the 2nd candle is white, which opens and closes within the body of previous day's candle.
What does this pattern imply?
When the price is in the midst of a strong declining mode, the buyers (bulls) suddenly step in and open the price higher than the previous day's close.
This shocks the sellers (bears), and they start covering their short positions quickly, causing the price to rise further. However, the short-covering rally can sometimes be tempered by the late comers who see this as an opportunity to short the trend they missed the first time, and as a result, a small candle that is still within the previous day’s body could be formed.
A confirmation of the reversal on the next day in terms of a higher close (preferably with high volume) would be needed to ascertain that the trend may be in a reversal.
HARAMI BEARISH PATTERN
Harami Bearish is a top reversal pattern / bearish reversal pattern.It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.
When the price has been in a rally mode for some time, a two-candle pattern forms.
The body of the 1st candle is the same color as the current trend (should be a long white candle).
The body of the 2nd candle is black/red, which opens and closes within the body of previous day's candle.
What does this pattern imply?
During an increasing price trend, after a long white candle day, the next day, the sellers (bears) suddenly step in and open the price lower than the previous day's close.
Shocked by the sudden appearance of sellers (bears) that causes some deterioration on the existing increasing trend, the buyers (bulls) become cautious and begin taking their profits by selling their long position, causing the price to drop further. However, on the other hand, some late buyers might see this as an opportunity to buy the trend missed previously. As a result, the price may stay in a small range throughout the day, forming a small candle but it’s still within the previous day's body.
A lower close on the next day would be needed to prove that the trend may be in a reversal.
To read about other Candlestick Patterns, go to: Learning Candlestick Charts.
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