Marginal Stock Trader wants to share with you what he learned about a reversal candlestick called harami, the "pregnant" candle. When we see this on a daily chart following an up or downtrend of more than six days, we are advised to immediately ask ourselves if the Minor trend is about to reverse direction.
The harami candle can occur both after an uptrend or downtrend.
Let us use the trading days beginning June 2, 2009 when our Ayala Corporation stock established a downtrend. In this case on June 9, the day immediately preceding the green harami candle, there is a large, real body red candle. The bears appear to be fully in the driver's seat.
The next day on June 10, however, a small real body green candle appeared within the larger real body. This is the harami candle. It was said that the reversal signal is more potent if it is the opposite color -- like the one we have on June 10 -- as this color change shows that the decline has stalled. The bulls are now on strong ground and are engaged in a struggle for power with the bears.
We are told also by those familiar with candlestick charting to always look carefully at the next day's candle, the one that follows the harami candle. This refers to the one on June 11, last trading day of Week 24.
The experts cautioned that sometimes harami merely signifies that the stock is entering a period of consolidation (meaning that the shares will trade sideways). If, however, our Ayala Corporation stock advanced the day after the harami candle takes place, then there is an increased likelihood that the shares have put in a Minor bottom.
Indeed, this is what happened on Thursday: the stock advanced. The 297.50 pesos open equals the low and the 307.50 pesos close equals the high. Listening to those skilled in this field, then we should be alert to a change in trend.
Outlook for Week 25
Here is Marginal Stock Trader's beginner's forecast for trading period June 15 to June 19, 2009. Since the Ayala Corporation stock we are following is currently in a short-term downtrend, then today's advance following the harami candle of the previous day warns of an impending period of sideways trading, or perhaps reverting back to its Major trend: an uptrend.
Data Source
Philippine Stock Exchange through online broker BPI Trade
Suggested Reading
Harami: This Candle Can Help Nutrure Your Profits
Stop-Loss: How To Use It In Trading
This pattern, like the bullish harami, is not in the same strength category with such patterns as .... high, and there were no other relevant resistance levels nearby, so this rule did not come into play.watch here for more details
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