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Shorting Guide using the Bearish Harami Pattern Trade Reversals with Confidence

A harami pattern signalling a bearish reversal can occur at the peak of an uptrend, making it a suitable time for a trader to establish a short position.

Here’s what the thought process is behind shorting a bearish harami:

  1. The market is currently showing an upward trajectory, seemingly giving the bulls a strong advantage.

 

  1. The market on P1 trades higher, creating a new high and closing positively with a blue candle day. This action signals the bulls’ continued dominance.

 

  1. P2 saw the market open lower than expected, causing the bulls to be displaced and resulting in some panic.

 

  1. The market closed with a red candle, having traded lower throughout the day.

 

  1. The sudden downturn of the market has caused alarm which has led the bulls to close their positions.

 

  1. It is probable that this downward movement will persist, and thus, one should consider entering into a short position.

Here’s the trade setup for the short trade based on bearish harami: 

  1. The risk-taker needs to check that P1 and P2 form a bearish harami before shorting the market near the close of P2. To complete this action, two conditions should be satisfied.

 

  1. P2’s opening rate should be less than P1’s closing rate.

 

  1. We expect P2’s closing figure to be higher than P1’s starting value.

 

  1. The risk-averse will consider shorting the market the day after P2, once a red candle day has been made.

 

  1. The peak point between P1 and P2 serves as a limit for trade losses.
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