Commodity trading principles are the basic elements incorporated in the candlestick signals. Commodity trading principles are easier to analyze than stock trades. This is derived from one simple factor. Commodity trading principles are based upon supply and demand. Whereas stock analysis involves a multitude of external factors that can affect a price, commodity trading principles relied mostly upon the perception of supply and demand. This creates a much smoother trend analysis than stock prices.
Candlestick signals were developed on the most basic commodity trading principles. 400 years of investor observations occurred while trading Rice, one of the most basic commodities. Over the past four centuries, the 50 or 60 candlestick signals became recognized. Of these, 12 signals were found to occur a majority of the time. Their appearance also indicated extremely high probability reversal situations. These 12 signals are now considered the major candlestick signals. Learning these signals allows an investor to gain valuable insights into investor sentiment.
Understanding the investor psychology that formed the major signals is the basis for fully understanding commodity trading principles. The facets of supply and demand do not immediately change commodity prices.
The perception of what supply and demand forces may be doing is what changes commodity prices. Candlestick signals are the graphic depiction of those reversals in investor sentiment. Understanding the factors that go into a candlestick signal formation makes understanding commodity trading much easier to comprehend. You can follow Stephen Bigalow’s live futures and commodity trading account.
The Bearish Harami is one of the major signals that exhibits common sense into graphic depiction. Candlestick analysis provides a clear understanding of what happens to investor sentiment at the reversal areas. The elements that create a Bearish Harami produce clear insights into what was going on in investor minds at a reversal.
BEARISH HARAMI
Description
The Bearish Harami is the exact opposite of the Bullish Harami. The pattern is composed of a two-candle formation. The body of the first candle is the same color as the current trend. The first body of the pattern is a long body; the second body is smaller. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over.
Criteria
- The body of the first candle is white; the body of the second candle is black.
- The uptrend has been apparent. A long white candle occurs at the end of the trend.
- The second day opens lower than the close of the previous day and closes higher than the open of the prior day.
- For a reversal signal, confirmation is needed. The next day should show weakness.
Signal Enhancements
- The longer the white candle and the black candle, the more forceful the reversal.
- The lower the black candle closes down on the white candle, the more convincing that a reversal has occurred, despite the size of the black candle.
Pattern Psychology
After a strong uptrend has been in effect and after a long white candle day, the bears open the price lower than the previous close. The longs get concerned and start profit taking. The price finishes lower for the day. The bulls are now concerned as the price closes lower. It is becoming evident that the trend has been violated. A weak day after that would convince everybody that the trend was reversing. Volume increases due to the profit taking and the addition of short sales.
Having insight into the effect of Haramis provides an opportunity to maximize returns. If all of your investment funds are being fully used, a Harami may reveal that one of the positions has stalled for a few days. An aggressive trader may want to move those funds to a better trade, and then come back after a few days to reinvest once the position is moving.
Speak Your Mind