A Big Candlestick with Big reversal for NIFTY
The Nifty's descent last October was ended with a Bullish Harami. Notice the size of both the candles forming the Harami. Where do most investors sell? At the bottom.
The large candle with stochastics in oversold conditions denotes the panic selling in the markets. Would you buy on seeing the long bearish candle? No. The buying scenario is set up only after the completion of the Bearish Harami formation. Smart money moves in when common man gives up hope. Keep in mind that these candlestick formations have been studied for centuries. A candlestick reversal signal with stochastics oversold is a very good long entry setup.
There are many variations of the Bullish Harami. The second candle in the formation can be very small, sometimes a Doji. This candle can be formed in the upper half of the bearish body or the lower half. This has implications on how fast or slow the trend will reverse. Also keep in mind that candlestick signals require confirmation. In the case below, the signal was confirmed the next day with a bullish close.
Chart courtesy icharts.in