Bearish Harami Cross Candlestick Pattern: Traders rely on technical analysis to analyze and predict the future movement of the price in the market. Candlestick patterns are a part of technical analysis preferred by traders to understand and predict the future price movement in securities.

Here in this article, we shall discuss the bearish harami cross candlestick pattern with its meaning, formation, and how to set up a trade with the pattern formation.

Bearish Harami Cross Candlestick Pattern – Definition

The bearish harami cross candlestick pattern is a two-candlestick pattern that indicates a potential bearish reversal in security. This pattern consists of a large bullish candlestick (green candle) followed by a doji candlestick.

The doji candle in this pattern is formed within the first candle’s body. This means that the high and low prices of the doji candle are within the open and close price range of the first candle. It is preferable for the prior trend of the security to be an uptrend and its appearance after it would give a better indication of the bearish reversal

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Bearish Harami Cross Candlestick Pattern – Meaning

As the bearish harami cross candlestick pattern indicates a bearish reversal, it is preferable to appear during an uptrend. Here, the first candle formed in this pattern is a long green candle which indicates a strong buying pressure present in the security.

This is followed by the second candle opening lower than the close price of the first candle. Here, the opening and closing prices of the second candle will be close to each other, forming a doji candle. Moreover, in that duration, the price of the stock does not go above the close price of the first candle nor go below the open price of the first candle.

The formation of a doji in the bearish harami indicates that there is equal buying and selling pressure thus signaling a indecision in the market. Due to this indecisiveness, participants might start booking their profit which will in turn bring in more sellers. Thus, the formation of this pattern is generally associated with a bearish momentum in the stock price.

Bearish Harami Cross Candlestick Pattern – Strengths

There are a few situations where the formation of the Bearish Harami Cross candlestick pattern gives a stronger bearish reversal indication. 

  • If it is formed near a resistance zone:  The formation of this pattern near a resistance zone is a strong indication that the price of security will go down. This is because there would already be multiple sell orders at that zone and the formation of this pattern will bring in more sellers as well.
  • If it is formed when the price is at an all-time high: This also is a strong indication that the price might potentially go down for a short duration or completely go into a downtrend. This is because there might be anxiousness in the market when the price is at an all-time high and they would think of exiting the trade by booking the profits already made. This sentiment is triggered when this pattern is formed when the price is at an all-time high.
  • If it is formed with the RSI also being in an overbought zone: This is a strong indication as the RSI being in an overbought zone and the formation of this pattern indicates more sellers in the market. Hence the price might see a downward momentum.

Bearish Harami Pattern and Bearish Harami Cross Pattern – Difference

In the bearish harami candlestick pattern, the second candle formed is a proper red candle which is formed within the body of the first candle. Whereas the second candle is a doji candle in the bearish harami cross candlestick pattern. 

The formation of a bearish harami candlestick pattern gives a slightly stronger bearish reversal indication as the second candle formed in that candle is a proper red candle which shows that there was higher selling pressure whereas the doji indicates an equal buying and selling pressure.

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Bearish Harami Cross Candlestick Pattern – Trading Ideas

  • ENTRY: When the price of the security goes below the open price of the first candle in this pattern, traders can take a sell entry.
  • TARGET: Traders can exit the trade when the price of the security reaches near the immediate support zone. Once this level is reached, they can also book partial profits in the trade and hold on to the remaining position until the next support level.
  • STOP LOSS: Traders can place the stop loss near the close price of the first candle in this pattern.

Bearish Harami Cross Candlestick Pattern – Example

In the above chart of ICICI BANK, the time frame is 1 day. The two candles enclose is the bearish harami cross candlestick pattern. As you can see, the pattern was formed at the top of an uptrend and the price went into a downtrend after the formation of this pattern.

Traders could have taken a sell entry at Rs. 799.70 and the stop loss was at Rs. 842

Combining the Bearish Harami Cross Candlestick Pattern with RSI Indicator

Traders can combine the formation of a bearish harami cross candlestick pattern with the RSI indicator to get an even stronger indication of a trend reversal. If the RSI is also at an overbought zone when this pattern is formed, this is a stronger indication of bearish momentum than just the formation of this pattern. So if both are indicating a bearish momentum, traders can take a sell entry.

As you can see in the above chart of ICICI BANK, the RSI was also at an overbought zone when the bearish harami cross candlestick pattern was formed and the price went down as indicated. This would’ve been a stronger indication and a confirmation for the traders when this pattern was formed. 

Bearish Harami Cross Candlestick Pattern – Limitations

The formation of the doji candle just indicates a weakness in the buying pressure and indecisiveness in the market. This indecisiveness is not the same as selling pressure overcoming the buying pressure. Hence, the price may shoot up again. Therefore, market participants should place the appropriate stop loss to minimize losses in such scenarios.

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Conclusion

In this article, we understood what a bearish harami cross candlestick pattern is, its meaning, its characteristics, and how a trader can take a trade. A bearish harami cross gives a strong bearish indication and the trader must couple it with the RSI indicator to confirm its bearish movement.

It is also recommended that traders place appropriate stop loss in place so that the loss can be minimized in cases where the trade goes against the analysis.

Written by Praneeth Kadagi

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