The Bullish Harami is a two day candlestick pattern that signals a potential trend reversal.
Day 1 is a long red day. Day 2 is a short candlestick day whose body is engulfed by day 1’s body.
The psychology of the pattern is that a long candlestick forms on day 1 with high volume and confidence by bears that the pullback or downtrend will continue. Suddenly, day 2 shocks the bears because it trades in a small range within the previous day’s real body. Light volume on day 2 raises concerns with bears of an impending change of trend. If day 3 closes even higher than day 2, bears will freak out and cover existing short positions which will push the market higher.
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In technical analysis, a candlestick pattern is a movement in prices shown graphically on a candlestick chart that some believe can predict a particular market movement. The recognition of the pattern is subjective and programs that are used for charting have to rely on predefined rules to match the pattern. There are 42 recognised patterns that can be split into simple and complex patterns.