How to Make Money Trading with Candlestick Charts

The Harami occurring in an up trend
implies that the buying has stopped.
Likewise, a Harami occurring in a
downtrend indicates that the selling has
stopped.
As in the case of the one-day
reversal signals, it is best to wait for

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confirmation the next day before taking on
any position.

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Bullish Harami
Description
Figure 8.1
shows a Bullish Harami
formation. The bigger engulfing candle is
black or dark in colour and the subsequent
smaller engulfed candle is white or light in
colour. It is not necessary for the tails of the
smaller candle to be engulfed by the
previous candle.

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Figure 8.1:
Bullish Harami signal

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Criteria
In order for the bullish Harami signal to be
valid, the following conditions must exist:
The stock must have been in a definite
downtrend before this signal occurs. This
can be visually seen on the chart.
The second day of the signal should be
white and the body should be completely
engulfed by the previous day’s black
candle body.
Why the Reversal Works
Consider a stock trending down. As usual,
the novice investors and traders panic at the

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bottom creating the long black candle.
However, due to some news or change in
perception after trading hours, demand gets
generated for the stock. The next day the
stock gaps up and smart money starts sapping
up the supply. The bulls are able to close the
candle towards the upper range of the
previous day. This makes the bears nervous.
Those who have shorted the stock in the hope
that it will keep going down are now having
second thoughts. They are waiting to see
what happens the next day. If the bulls are
still in the stock the next day, those with short
positions begin to cover their positions, thus
giving the stock more impetus in the upward
direction. The bulls get more confident and
the up trend begins.

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The following conditions can make the
Bullish Harami signal a more compelling
buy:
The longer the black engulfing candle
and the white engulfed candle, the higher
the chance that the trend will be
reversed.
There is heavy volume on either of the
two days of the signal formation.
Stochastics are in an oversold condition.
The higher the white candle closes into
the black candle body, the higher the
probability of reversal.

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Bearish Harami
Description
Figure 8.2
shows a Bearish Harami
formation. The bigger engulfing candle is
white or light in colour and the following
smaller engulfed candle is dark or black in
colour. It is not necessary for the tails of the
smaller candle to be engulfed by the
previous candle.

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Figure 8.2: