Candlestick patterns are one of the most powerful tools in a trader’s arsenal. Among them, the Bearish Harami stands out as a reliable reversal signal, especially when it appears after a strong uptrend. In this post, we’ll dive deep into what the Bearish Harami pattern is, how to identify it, and most importantly—how to trade it with various strategies.
🔍 What is the Bearish Harami Pattern?
The Bearish Harami is a two-candlestick pattern that signals a potential reversal from an uptrend to a downtrend. It is considered a bearish reversal pattern in technical analysis.
Structure:
- First Candle (Bullish): A large green (or white) candlestick that continues the current uptrend.
- Second Candle (Bearish): A small red (or black) candlestick that is completely contained within the body of the first candle.
This pattern suggests that the bullish momentum is weakening, and sellers may be preparing to take control.
✅ Key Characteristics
- Appears after a clear uptrend.
- Second candle opens and closes within the body of the first.
- The smaller the second candle, the stronger the signal.
- Volume often decreases on the second candle.
📌 Importance of Context
While the Bearish Harami can be a powerful signal, it shouldn’t be used in isolation. Consider:
- Overall trend (is it extended?)
- Support/Resistance zones
- Volume behavior
- Confirmation from next candle
🎯 How to Trade the Bearish Harami Pattern
🔸 1. Basic Strategy: Wait for Confirmation
Steps:
- Identify the Bearish Harami after an uptrend.
- Wait for a third candle to close below the second candle’s low.
- Enter a short position after confirmation.
- Set a stop-loss above the high of the first candle.
- Use a risk-reward ratio of at least 1:2.
Example:
- Uptrend in XYZ stock.
- Bullish candle closes at ₹300.
- Next candle (bearish) opens at ₹295 and closes at ₹292 (within the previous candle).
- Third candle breaks below ₹292 and closes at ₹285 → enter short.
- Stop-loss at ₹301, target at ₹270.
🔸 2. Support/Resistance Strategy
Combine the pattern with key support or resistance levels for higher accuracy.
Steps:
- Identify the pattern near a major resistance zone.
- Confirm with rejection wicks or volume spikes.
- Enter a short position upon breakdown.
- Use the resistance zone as your stop-loss.
Why It Works:
The resistance level strengthens the validity of the reversal signal, providing added confluence.
🔸 3. Moving Average Confluence
Use the 50 EMA or 200 EMA as a dynamic resistance.
Steps:
- Look for Bearish Harami near a downsloping moving average.
- If price is unable to break above the MA and forms the pattern, it signals potential downside.
- Enter short once the price closes below the Harami.
- Place stop-loss above the MA or Harami high.
Bonus Tip: Works better in trending markets rather than sideways.
🔸 4. Volume Divergence Strategy
Add volume as a filter to increase success rate.
Steps:
- Observe a high-volume bullish candle followed by a low-volume bearish candle inside it.
- Indicates buyer exhaustion.
- Wait for the third candle with increasing volume and a lower close.
- Enter short with confirmation.
Example:
If the bullish candle has 1M volume, but the Harami has 500k, it’s a sign of fading interest.
🔸 5. RSI Overbought Confirmation
Add the Relative Strength Index (RSI) to avoid false signals.
Steps:
- Spot Bearish Harami while RSI is above 70.
- Confirmation comes if RSI starts falling below 70.
- Entry on break of Harami’s low.
- Exit when RSI reaches 40–50 zone or based on risk-reward.
This strategy works well in overbought conditions where momentum is slowing.
🔸 6. Multi-Timeframe Strategy
Validate the signal using a higher timeframe.
Steps:
- Identify a Bearish Harami on a 4-hour chart.
- Check the daily chart for overbought levels or resistance.
- If aligned, go short on the next 4H candle break.
- Target previous support zones.
Benefit:
Reduces false signals that might appear on lower timeframes.
📉 Trade Management Tips
- Always use stop-loss to manage risk.
- Never trade a Harami in isolation—use supporting indicators.
- Be cautious during news or earnings as patterns can fail.
- Use trendlines to spot trend exhaustion alongside the Harami.
❌ Common Mistakes to Avoid
- Entering before confirmation
- Ignoring overall market sentiment
- Trading during consolidation zones
- Using fixed lot size instead of risk-adjusted sizing
🧠 Final Thoughts
The Bearish Harami pattern, though simple, becomes a powerful reversal tool when combined with confirmation signals and broader technical context. It offers high-probability trade setups with clear entry and exit rules.
By integrating the strategies above into your trading plan and practicing disciplined risk management, you can significantly improve your win rate and overall profitability.