Potential for Reversal
Before delving into the bearish harami itself, it’s important that you understand that larger family of stock charts that it comes from. Centuries ago, when the Japanese were first entering the world of rice securities, they developed a method for analyzing fluctuations in price that came to be known as the candlestick charts. These charts featured bars, either solid or hollow, that allowed investors to see the opening and closing price for a certain stock with just a glance.
If you’re interested in tracking some stocks and training yourself to look for patterns in the candlesticks, it’s important that you be able to spot some of the identifying characteristics of the bearish harami. Technical analysts consider this to be a trend that can be identified by looking for a large candlestick followed by a smaller candlestick that has a located within the vertical range of the initial candle’s body. Investors who spot this pattern should interpret it to mean that the previous bullish trend is probably going to end soon.
It’s important to note that this pattern is made up of two candlesticks, one that is large in body and one that is so small it is totally engulfed by the first. These two can be any combination of black and white, but in most cases the bearish reversal will be feature a white candlestick first. When you see one of these patterns forming, there’s a good chance that the trend that you’ve been tracking is going to change really soon.