- The Bullish Harami is a two candlestick reversal formation found at the bottom of a trend.
- The first candle of the formation is a long dark candle and the second is white.
- The open of the second candle is higher than the close of the first candle and the close is below the open of the first candle.
- Western technical analysis refers to the formation as an “Inside Day” when the both the real body and the shadows of the second candle are “inside” the first candle.
- The formation generally requires a follow through confirmation candle.
- The formation is more powerful when both of the candles are longer as opposed to shorter.
- The second candle can dictate the strength of the reversal of the formation by closing higher up into the first candle’s trading range.
- The formation is more credible if associated with higher than normal volume.
- The Bearish Harami is a two session candlestick pattern.
- The first session is a long white candle at the top of an uptrend.
- The second candle gaps down from the prior session’s close and trades down forming a dark candle with the close higher than the prior candle’s open.
- Western technical analysts refer to this pattern as an “Inside Day” because the price action of the second session is totally inside of the prior candle.
- This pattern needs confirmation with a bearish follow through candle the next session.
- Large candles bode for a more convincing reversal signal.
- A close toward the bottom of the first candle is also a more compelling pattern.
- Increased volume confirms that profit taking is underway and the bears are in control.
- The Hammer candlestick is a single session candle and is characterized by a small real body that closes in the upper 1/3 to 1/4 or the trading range of the session.
- The shadow of the pattern should be at least twice the size of the real body and there should ideally by no upper shadow.
- The candle is found at the bottom of a bearish trend and is more powerful if confirmed with other support.
- The color of the real body is not critical, although a white body is somewhat more bullish.
- A hammer on large volume at the bottom of a trend may be considered a capitulation day.
- The reversal is much more likely when the shadow is relatively long as compared to the real body of the candle.
- A gap down into the hammer and then a gap up, trade up on the follow through day is a very strong reversal signal.
- The classic hammer indicates a change in trader sentiment because at one point during the trading session the candle was long and dark representing massive bearishness. However, before the end of the day the bulls had pushed the stock back up to the top of the trading range on volume.
- Bears should begin to question the continued downtrend and when the stock follows through to the upside the next day it becomes confirmation that the trend has reversed.
- The hanging man is a single candlestick pattern found at the top of a bullish trend and indicates a reversal is imminent.
- The name comes from the visualization of a man hanging depicted by a head and dangling legs.
- The real body of the candle should be small and finish in the upper 1/3 to 1/4 of the day’s session.
- The wick or shadow should be a least twice the length of the real body.
- The candle should ideally have a “Shaven Head” with no shadow to the upside.
- The color of the real body is slightly more bearish if it is dark as opposed to white.
- The classic formation should occur with the Hanging Man gapping open to the upside on increased volume.
- A gap down and trade down candle the following day will confirm the reversal.
- At first glance, it may appear that the Hanging Man is a bullish candle because it closed higher than the previous day. However, the fact that it is apparent that sellers are present as represented by the long shadow will usually convince those that are long to close and take profit which is evidenced by a bearish follow though day in the next session.
May 29th, 2010 | 
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