How to Make Money Trading with Candlestick Charts

Bullish and Bearish Harami in
Nifty
Notice the chart at point A. This formation
looks like the Harami, but it actually is not.
Nifty opened a point higher than where it had
closed the day before. This does not satisfy
the conditions needed for the Harami
formation. Point B is a Bearish Harami.
Nifty opened exactly where it had closed the
night before. This is acceptable and satisfies
the criteria of engulfment. Point C is a
Bullish Harami. This stopped the pullback of
the Nifty and was a precursor to a huge run
up of the index.
Figure 8.6
shows a Bullish Harami in the
chart of Tata Tea. Notice the long dark
candle in oversold conditions. This should

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have been the trader’s first alert. He should
have been on the lookout for a buy signal
from then on. The next day a Harami was
formed. The trader should then have
analyzed the Harami formation. Look at the
long lower shadow. The bears tried to take
control on that day, but failed.

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Figure 8.6:
Bullish Harami in upper region
of a previous body is a very powerful buy
signal
The bulls had not only managed to gap up the
price from the previous close, but also to
close it higher than the open. The ideal point
would have been to buy the stock on
confirmation after the Harami.
Figure 8.7
 shows the chart of Rolta India.

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Figure 8.7:
Bullish Harami in Rolta
Notice the couple of Harami formations in
March 2005. The first Harami formation
(Point A) would have resulted in a small
loss, if a trader would have purchased the
stock on the gap up after the Harami. Again,
this will be dealt with in 
Chapter 11
. The
second Harami formation (Point B) has a

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high significance. It is a confirmation of the
bulls entering the market. The fact that you
can see two Harami formations at the same
level indicates a great desire on the part of
the bulls to not let the prices fall further.
Guess what this confirmation Harami does to
the bear’s psyche? If the first Harami made
them nervous, the second Harami at the same
level dissolves their confidence. The shorts
start covering their position. New buying
comes in. The candlestick trader should be
buying as soon as the prices open higher the
next day. In this case, the prices again
gapped up adding to the confirmation of
trend reversal. Notice how in June 2005 the
rapid pullback was also stopped with a
spinning top Harami (Point C).

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Finally, let us look at the chart of ABB Ltd.
(
Figure 8.8
)
Figure 8.8: