Bearish Harami


Shape:
The bearish harami is a two-candle reversal candlestick pattern that typically forms after an uptrend.
It consists of:

  • A large bullish (green/white) candle followed by

  • A smaller bearish (red/black) candle that is completely contained within the body of the first candle.
    This pattern indicates potential exhaustion of buyers and signals the possibility of a bearish reversal.

Success Rate:

  • The bearish harami has a moderate success rate of 55–65%, depending on market conditions.

  • It is more reliable in strong uptrends and near major resistance levels.

  • Confirmation (e.g., follow-up bearish candle or volume drop) increases accuracy.

Buy:
Not applicable directly, since this is a bearish reversal pattern. However, traders holding long positions may use it as an exit signal.

Take Profit (TP):

  • Measure the recent swing high to the neckline (support) and project downward for potential target.

  • Conservative TP: recent swing low.

  • Aggressive TP: next major support zone.

Stop Loss (SL):
Place the stop loss just above the high of the first bullish candle.
This protects against false signals if the uptrend continues.

Sell:

  • Enter a short/sell position once the second candle of the pattern closes, confirming the bearish harami.

  • Stronger signal if the next candle after the harami also closes bearish with increased volume.

Profit Trailing:

  • Use a trailing stop above lower highs as the downtrend progresses.

  • Alternatively, use a moving average (e.g., 20 EMA) to trail profits.

Lot Size:
Determine position size based on your account size and risk per trade.
Ensure that the potential loss (entry to stop-loss distance) does not exceed 1–2% of account equity.

Risk-to-Reward Ratio:
Aim for at least 1:2 or higher, where potential profit is twice the risk.

Leverage:
Use leverage carefully. Since this is a reversal signal, sudden pullbacks may occur.
Avoid over-leveraging, especially in highly volatile markets.

Other Conditions:

  • Works best after a prolonged uptrend or near a resistance level.

  • Confirmation from indicators like RSI (overbought), MACD (bearish crossover), or volume drop strengthens the signal.

  • More reliable on higher timeframes (daily/weekly) than intraday charts.

Caution:

  • False signals are common in sideways markets.

  • A harami by itself is weaker compared to engulfing patterns; always wait for confirmation.

  • Avoid trading during major news releases that can cause sudden volatility.


Pros and Cons of the Bearish Harami

Pros:

  • Early Warning Signal: Provides early indication of a potential bearish reversal.

  • Clear Structure: Easy to identify on charts.

  • Effective at Resistance: Works well when spotted near strong resistance levels or after a sharp rally.

  • Useful for Exiting Longs: Helps traders lock in profits on bullish trades.

Cons:

  • Moderate Reliability: Alone, it’s weaker than other reversal patterns (e.g., bearish engulfing).

  • Confirmation Needed: Requires additional bearish confirmation to increase accuracy.

  • Choppy Market Issue: Less effective in sideways or consolidating markets.

  • Short-Term Nature: Often signals short-term pullbacks rather than strong reversals.


Trading Psychology of Bearish Harami

Formation:

  • Strong Uptrend: Buyers dominate, pushing prices higher.

  • First Candle (Bullish): Confidence is high; buying pressure continues.

  • Second Candle (Bearish, Small): Indicates hesitation — sellers are stepping in, buyers are losing strength.

Market Sentiment:

  • Buyers’ Fatigue: The smaller bearish candle signals buyers are no longer as aggressive.

  • Sellers’ Confidence: Sellers gain confidence seeing the smaller candle inside the large bullish one.

Breakout Psychology:

  • Anticipation: Traders recognize the bearish harami and expect a reversal.

  • Confirmation: A bearish follow-up candle or a break of support confirms bearish intent.

  • Shift in Power: Traders start closing longs, while aggressive traders enter shorts.

Post-Pattern Behavior:

  • Validation: If price falls below recent support with increased volume, the reversal is validated.

  • Profit-Taking: Long holders exit positions, adding to selling pressure.

  • Trailing Stops: Bears use trailing stops above lower highs to lock in gains.

Failure and Risk Management:

  • False Signals: If price breaks above the bullish candle’s high, the pattern fails.

  • Reevaluation: Traders must recheck with other indicators before holding shorts.

General Tips for Trading Psychology:

  • Patience: Wait for confirmation before shorting.

  • Discipline: Stick to your SL/TP levels.

  • Emotional Control: Avoid panic if small pullbacks occur — focus on confirmation.

  • Awareness: Understand that harami patterns often signal slowing momentum, not always a full trend reversal.