The Synapse Network

Bullish Harami Cross & Bearish Harami Cross

What Is a Harami Cross?

A harami cross is a Japanese candlestick pattern that consists of a large candlestick that moves in the direction of the trend, followed by a small doji candlestick.

The doji is completely contained within the prior candlestick’s body.

The harami cross pattern suggests that the previous trend may be about to reverse.

The pattern can be either bullish or bearish.

The bullish pattern signals a possible price reversal to the upside, while the bearish pattern signals a possible price reversal to the downside.

harami cross

Understanding the Harami Cross

A bullish harami cross pattern forms after a downtrend.

The first candlestick is a long down candle (typically colored black or red) which indicates that the sellers are in control.

The second candle, the doji, has a narrow range and opens above the previous day’s close.

The doji candlestick closes near to the price it opened at.

The doji must be completely contained within the real body of the previous candle.

The doji shows that some indecision has entered the minds of sellers.

Typically, traders don’t act on the pattern unless the price follows through to the upside within the next couple of candles.

This is called confirmation.

Sometimes the price may pause for a few candles after the doji, and then rise or fall.

A rise above the open of the first candle helps confirm that the price may be heading higher.

A bearish harami cross forms after an uptrend.

The first candlestick is a long up candle (typically colored white or green) which shows buyers are in control.

This is followed by a doji, which shows indecision on the part of the buyers.

Once again, the doji must be contained within the real body of the prior candle.

If the price drops following the pattern, this confirms the pattern.

If the price continues to rise following the doji, the bearish pattern is invalidated.

Harami Cross Enhancers

For a bullish harami cross, some traders may act on the pattern as it forms, while others will wait for confirmation.

Confirmation is a price move higher following the pattern.

In addition to confirmation, traders may also give a bullish harami cross more weight or significance if it occurs at a major support level.

If it does, there is a greater chance of a larger price move to the upside, especially if there is no nearby resistance overhead.

Traders may also watch other technical indicators, such as the relative strength index (RSI) moving up from oversold territory, or confirmation of a move higher from other indicators.

For a bearish harami cross, some traders prefer waiting for the price to move lower following the pattern before acting on it.

In addition, the pattern may be more significant if it occurs near a major resistance level.

Other technical indicators, such as an RSI moving lower from overbought territory, may help confirm the bearish price move.

Trading the Harami Cross Pattern

It is not required to trade the harami cross.

Some traders use it simply as an alert to be on the lookout for a reversal.

If already long, a trader may take profits if a bearish harami cross appears and then the price starts dropping after the pattern.

Or, a trader in a short position may look to exit if a bullish harami cross appears and then the price starts rising shortly after.

Some traders may opt to enter positions once the harami cross appears.

If entering long on a bullish harami cross, a stop loss can be placed below the doji low or below the low of the first candlestick.

A possible place to enter the long is when the price moves above the open of the first candle.

If entering a short, a stop loss can be placed above the high of the doji or above the high of the first candle.

One possible place to enter the trade is when the price drops below the first candle open.

Harami cross patterns don’t have profit targets.

Therefore, traders need to use some other method of determining when to exit a profitable trade.

Some options include using a trailing stop loss, finding an exit with Fibonacci extensions or retracements, or using a risk/reward ratio.

Concluding Thoughts

The harami cross pattern is a significant indicator for traders looking to identify potential reversals in market trends.

While it can signal a change in direction, it’s essential to use it in conjunction with other technical indicators and strategies to confirm its validity.

Whether trading a bullish or bearish harami cross, proper risk management through the use of stop-loss orders and careful analysis of market conditions is crucial.

Incorporating the harami cross into a broader trading strategy can enhance decision-making and potentially improve trading outcomes.

0 Comments/by
The Synapse Network

Bearish Harami

What Is a Bearish Harami?

A bearish harami is a two-bar Japanese candlestick pattern that suggests prices may soon reverse to the downside.

The pattern consists of a long white candle followed by a small black candle.

The opening and closing prices of the second candle must be contained within the body of the first candle.

An uptrend precedes the formation of a bearish harami.

Bearish Harami Explained

The size of the second candle determines the pattern’s potency; the smaller it is, the higher the chance there is of a reversal occurring.

The opposite pattern to a bearish harami is a bullish harami, which is preceded by a downtrend and suggests prices may reverse to the upside.

The bearish harami received its name because it resembles the appearance of a pregnant woman.

“Harami” is the Japanese word for pregnant.

Traders typically combine other technical indicators with a bearish harami to increase the effectiveness of its use as a trading signal.

For example, a trader may use a 200-day moving average to ensure the market is in a long-term downtrend and take a short position when a bearish harami forms during a retracement.

Trading a Bearish Harami

Price Action: A short position could be taken when the price breaks below the second candle (harami candle) in the pattern.

This can be done by placing a stop-limit order slightly below the harami candle’s low, which is ideal for traders who don’t have time to watch the market, or by placing a market order at the time of the break.

Depending on the trader’s appetite for risk, a stop-loss order could be placed above either the high of the harami candle or above the long white candle.

Areas of support and resistance might be used to set a profit target.

 

Indicators: Traders can use technical indicators, such as the relative strength index (RSI) and the stochastic oscillator with a bearish harami to increase the chance of a successful trade.

A short position could be opened when the pattern forms and the indicator gives an overbought signal.

Because it is best to trade a bearish harami in an overall downtrend, it may be beneficial to make the indicator’s setting more sensitive so that it registers an overbought reading during a retracement in that trend.

Profits could be taken when the indicator moves back into oversold territory.

Traders who want a larger profit target could use the same indicator on a larger time frame.

For example, if the daily chart was used to take the trade, the position could be closed when the indicator gives an oversold reading on the weekly timeframe.

Concluding Thoughts

The bearish harami is a valuable pattern for traders looking to identify potential reversals in an uptrend.

While the pattern alone can signal a bearish reversal, its effectiveness is enhanced when used in conjunction with other technical indicators like the RSI or stochastic oscillator.

As with all trading strategies, proper risk management is crucial, and traders should be mindful of using stop-loss orders to mitigate potential losses.

Incorporating the bearish harami into a broader trading strategy that includes trend analysis and confirmation signals can lead to more informed trading decisions and potentially better outcomes.

0 Comments/by
The Synapse Network

Bullish Harami

What Is a Bullish Harami?

A bullish harami is a basic candlestick chart pattern indicating that a bearish trend in an asset or market may be reversing.

This pattern is often used by traders to identify potential points of reversal and may signal a shift from a downward trend to an upward trend.

Understanding a Bullish Harami

The bullish harami pattern is a candlestick chart indicator suggesting that a bearish trend may be coming to an end.

It is generally identified by a small increase in price, represented by a white candle, that is contained within the downward price movement of the previous days, shown by black candles.

This pattern is important for traders and investors as it may signal an opportunity to enter a long position on an asset.

A candlestick chart, which this pattern is based on, is a type of chart used to track the performance of a security.

Named for its rectangular shape with lines protruding from the top and bottom, the chart resembles a candle and wicks.

The candlestick chart typically represents the price data of a stock on a single day, including opening price, closing price, high price, and low price.

To identify a harami pattern, investors must first examine daily market performance as reported in candlestick charts.

The harami pattern emerges over two or more days of trading.

A bullish harami relies on the initial candles to indicate that a downward price trend is continuing and that the bearish market is pushing the price lower.

The bullish harami is characterized by a long candlestick followed by a smaller body, often referred to as a doji, which is completely contained within the vertical range of the previous body.

The word “harami” comes from an old Japanese word meaning “pregnant,” which is visually represented by the pattern where a smaller body is contained within the previous day’s candle, resembling a pregnant woman.

For a bullish harami to be confirmed, the smaller body on the subsequent doji should close higher within the body of the previous day’s candle.

This signals a greater likelihood that a reversal will occur.

Bullish Harami, Bearish Harami, and Advanced Candlestick Patterns

While the bullish harami signals a potential reversal in a bearish trend, its counterpart, the bearish harami, suggests the opposite: a potential reversal in a bullish trend.

Both patterns are essential tools in candlestick chart analysis, which offers a wide range of patterns to predict future trends.

These include basic patterns like bullish and bearish crosses, evening stars, rising threes, and engulfing patterns.

For those seeking deeper insights, advanced candlestick patterns such as island reversal, hook reversal, and san-ku or three gaps patterns can provide more detailed analysis and predictions.

Concluding Thoughts

The bullish harami is a valuable pattern for traders looking to spot potential reversals in a bearish trend.

While it offers a straightforward signal, it should be used in conjunction with other technical indicators and analysis to confirm the trend reversal.

Understanding and recognizing this pattern can help traders make more informed decisions and capitalize on emerging market opportunities. As with all trading strategies, a well-rounded approach that includes various tools and indicators will enhance the reliability of the pattern and improve overall trading outcomes.

0 Comments/by
The Synapse Network

Bearish Engulfing

What Is a Bearish Engulfing Pattern?

In technical analysis, the bearish engulfing pattern is a chart pattern that can signal a reversal in an upward price trend.

Comprising two consecutive candles, the pattern features a smaller bullish candle followed by a larger bearish candle that engulfs the first.

This formation is considered a strong indicator that the prior upward momentum is waning and a reversal is on the horizon.

Understanding the Bearish Engulfing Pattern

The bearish engulfing pattern is a two-candle reversal pattern.

The second candle completely engulfs the body of the first one, signaling a potential shift in market sentiment from bullish to bearish.

For the pattern to be valid, the body of the down candle must engulf the up candle, meaning the high must be higher, and the low must be lower than the previous candle.

This pattern is more significant if it occurs after a price advance, indicating that the uptrend may be losing strength and a downtrend could be imminent.

Interpreting the Bearish Engulfing Pattern

The bearish engulfing pattern serves as a warning sign, signaling a potential reversal from a bullish to a bearish trend.

It indicates a sudden shift in market sentiment where sellers have overtaken buyers.

When this pattern appears after an uptrend, it suggests that the bullish momentum is weakening.

This pattern is often an early indicator that a downtrend may be on the horizon.

For investors holding long positions, it can be a signal to consider exiting or tightening stop-loss levels.

For traders shorting the asset or market, this pattern can mark a good entry point, though additional confirmation is typically needed.

The Psychology Behind the Bearish Engulfing Pattern

The psychology behind the bearish engulfing pattern reflects the shifting dynamics between buyers and sellers.

Initially, there is optimism as the pattern usually occurs after a period of upward price movement, indicating that buyers have been in control.

The small bullish candle suggests that buyers still expect the upward trend to continue.

The appearance of a large bearish candle that engulfs the previous bullish candle signals a change in sentiment.

This indicates that sellers have entered the market with enough force to overshadow the previous gains.

This shift can prompt those holding long positions to sell and exit, while bearish traders may see this as an opportunity to enter short positions.

Both bears and bulls may seek additional confirmation that the pattern signifies what it suggests.

If the price continues to move downward after the pattern, it would validate the bearish sentiment, reinforcing the likelihood of a downtrend.

Trading the Bearish Engulfing Pattern

The bearish engulfing pattern is often used as a technical signal for a potential reversal from bullish to bearish sentiment.

This pattern is typically seen at the end of an uptrend and can be more significant when accompanied by high trading volume.

To confirm the bearish signal, traders can wait for a subsequent bearish candle in the next session or look for a gap down, where the opening price is lower than the previous session’s closing price.

Additional technical tools, such as moving averages or RSI, can be used to confirm the bearish signal.

For example, a crossover in MACD or an RSI heading below 70 could provide additional confirmation.

When trading this pattern, traders typically initiate a short position after confirming the bearish signal, with a stop loss set above the highest point of the engulfing candle.

The Pros and Cons of Using the Bearish Engulfing Pattern

The bearish engulfing pattern offers several advantages as an early warning signal and is relatively easy to identify.

It is versatile and can be applied across various time frames and markets.

However, the pattern is not without its drawbacks.

It can produce false signals, especially in choppy markets, and often requires additional confirmation, which can delay action.

Moreover, it is a lagging indicator, as it forms after price changes have occurred.

Concluding Thoughts

The bearish engulfing pattern is a valuable tool for traders looking to identify potential reversals in an uptrend.

While it is a powerful signal, especially when confirmed by other technical indicators, it should not be relied upon in isolation.

The pattern’s effectiveness can vary depending on the context, and it often requires additional confirmation to reduce the risk of false signals.

As with any trading strategy, proper risk management and a well-rounded approach are essential when incorporating the bearish engulfing pattern into your analysis.

0 Comments/by
The Synapse Network

Bullish Engulfing

What Is a Bullish Engulfing Pattern?

A bullish engulfing pattern is a white candlestick that closes higher than the previous day’s opening after opening lower than the previous day’s close.

It can be identified when a small black candlestick, showing a bearish trend, is followed the next day by a large white candlestick, showing a bullish trend, the body of which completely overlaps or engulfs the body of the previous day’s candlestick.

A bullish engulfing pattern may be contrasted with a bearish engulfing pattern.

bullish engulfing

Understanding a Bullish Engulfing Pattern

The bullish engulfing pattern is a two-candle reversal pattern.

The second candle completely ‘engulfs’ the real body of the first one, without regard to the length of the tail shadows.

This pattern appears in a downtrend and is a combination of one dark candle followed by a larger hollow candle.

On the second day of the pattern, the price opens lower than the previous low, yet buying pressure pushes the price up to a higher level than the previous high, culminating in an obvious win for the buyers.

What Does a Bullish Engulfing Pattern Tell You?

A bullish engulfing pattern is not to be interpreted as simply a white candlestick, representing upward price movement, following a black candlestick, representing downward price movement.

For a bullish engulfing pattern to form, the stock must open at a lower price on Day 2 than it closed at on Day 1.

If the price did not gap down, the body of the white candlestick would not have a chance to engulf the body of the previous day’s black candlestick.

Because the stock both opens lower than it closed on Day 1 and closes higher than it opened on Day 1, the white candlestick in a bullish engulfing pattern represents a day in which bears controlled the price of the stock in the morning only to have bulls decisively take over by the end of the day.

The white candlestick of a bullish engulfing pattern typically has a small upper wick, if any.

That means the stock closed at or near its highest price, suggesting that the day ended while the price was still surging upward.

This lack of an upper wick makes it more likely that the next day will produce another white candlestick that will close higher than the bullish engulfing pattern closed, though it’s also possible that the next day will produce a black candlestick after gapping up at the opening.

Because bullish engulfing patterns tend to signify trend reversals, analysts pay particular attention to them.

Bullish Engulfing Pattern vs. Bearish Engulfing Pattern

These two patterns are opposites of one another.

A bearish engulfing pattern occurs after a price moves higher and indicates lower prices to come.

Here, the first candle in the two-candle pattern is an up candle.

The second candle is a larger down candle, with a real body that fully engulfs the smaller up candle.

Limitations of Using Engulfing Patterns

A bullish engulfing pattern can be a powerful signal, especially when combined with the current trend; however, they are not bullet-proof.

Engulfing patterns are most useful following a clean downward price move as the pattern clearly shows the shift in momentum to the upside.

If the price action is choppy, even if the price is rising overall, the significance of the engulfing pattern is diminished since it is a fairly common signal.

The engulfing or second candle may also be huge.

This can leave a trader with a very large stop loss if they opt to trade the pattern.

The potential reward from the trade may not justify the risk.

Establishing the potential reward can also be difficult with engulfing patterns, as candlesticks don’t provide a price target.

Instead, traders will need to use other methods, such as indicators or trend analysis, for selecting a price target or determining when to get out of a profitable trade.

Concluding Thoughts

The bullish engulfing pattern is a widely recognized signal that can indicate a potential trend reversal.

However, it should not be relied upon in isolation.

Traders must consider the broader market context and use additional technical indicators to confirm the pattern’s validity.

While powerful, the pattern also comes with limitations, particularly in volatile markets where it may be less reliable.

Proper risk management and a clear exit strategy are essential when trading based on bullish engulfing patterns.

0 Comments/by