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Bullish Harami Candlestick Pattern Helps Identify Correct Trend

Posted By On 8/10/2009 11:11:00 PM Under

Candlestick charting helps one to identify the trend reversals at the earliest and one such candlestick pattern is bullish harami which is made up of two candlesticks. The point here to note is that the first candle has a large body and the second candle has a small body and this candle is totally encompassed by the first.

One will be able to see four possible combinations in this pattern namely white/white, white/black, black/white and black/black candlestick combinations. Whether it is a bullish reversal or bearish reversal patterns is determined by the preceding trend.

One has to be clear about this fact that Harami is considered potential bullish reversals after a decline and potential bearish reversals after an advance. No matter what the color of the first candlestick, the smaller the body of the second candlestick is, the more likely the reversal. If the small candlestick is a doji, the chances of a reversal increase.

This is an extract from book Beyond Candlesticks where Steve Nison has asserted that any combination of colors can form a harami, but that the most bullish are those that form with a white/black or white/white combination. Because the first candlestick has a large body, it implies that the bullish reversal pattern would be stronger if this body were white. The long white candlestick shows a sudden and sustained resurgence of buying pressure. The small candlestick afterwards indicates consolidation. White/white and white/black bullish harami are likely to occur less often than black/black or black/white. After a decline, a black/black or black/white combination can still be regarded as a bullish harami. The first long black candlestick signals that significant selling pressure remains and could indicate capitulation. The small candlestick immediately following forms with a gap up on the open, indicating a sudden increase in buying pressure and potential reversal.

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