Technical Analysis · Field Notebook · Page 5 of set
Chapters 9 and 10 — Multiple Candlestick Patterns, Parts 2 and 3. The Harami (a small candle "pregnant" inside a big one), price gaps, and the last two patterns: the Morning Star and Evening Star. Plus the master entry/stop table for every pattern so far.
Notebook Summary · liftable, derivable from the notes below
| Bullish Harami | Bearish Harami | |
|---|---|---|
| Where | bottom of downtrend | top of uptrend |
| P1 / P2 | long red / small blue | long blue / small red |
| Trade | long ~P2 close | short ~P2 close |
| Stop-loss | lowest low P1&P2 | highest high P1&P2 |
| Morning Star | Evening Star | |
|---|---|---|
| Where | bottom of downtrend | top of uptrend |
| P1 | long red | long blue |
| P2 | gap-down doji/top | gap-up doji/top |
| P3 | gap-up blue ↑ | gap-down red ↓ |
| Trade | long on P3 | short on P3 |
| Stop | lowest low | highest high |
The engulfing was a big candle swallowing a small one. Reverse the order — big candle first, then a small one tucked inside it — and the meaning flips from "sudden takeover" to "the trend just ran out of breath." That reversal of order, and the sudden jumps in price called gaps, are what this page is built on.
Harami is an old Japanese word for "pregnant" — which is exactly what it looks like: a long candle (P1) followed by a small candle (P2) tucked inside P1's body, like a baby inside the parent. P2 is generally the opposite colour to P1. When it appears, a trend reversal is possible.
Bullish harami (bottom of a downtrend): P1 is a long red candle reinforcing the bears; then P2 opens higher than P1's close — already unsettling the bears — and closes as a small blue candle just below P1's open. That small, unexpected blue candle emboldens the bulls and unnerves the bears. Go long near P2's close; stop at the lowest low of P1 and P2.
Bearish harami (top of an uptrend): the mirror. P1 is a long blue candle; P2 opens lower than P1's close, panicking the bulls, and closes as a small red candle. Short near P2's close; stop at the highest high of P1 and P2.
A gap happens when a stock closes at one price and opens the next day at a different one — with no trades in the space between. It is the market pricing in news that broke while it was shut.
The morning star is a bullish, three-candle reversal at the bottom of a downtrend. Read it as a story over three days:
Without P2's doji, P1 and P3 would just look like a bullish engulfing — the indecision candle in the middle is what makes it a star. Both risk taker and risk averse enter long on P3 itself (around 3:20 PM), no day-4 wait needed. Stop = the lowest low of the three candles. Validation on P3: P1 red, P2 a gap-down doji/spinning top, P3 a gap-up with CMP above P1's open.
The bearish mirror, at the top of an uptrend. P1 is a long blue candle (buying acceleration); P2 gaps up but stalls into a doji/spinning top, panicking the bulls a little; P3 gaps down into a long red candle as sellers take control. Both risk types short on P3; stop = the highest high of the three. Validation: P1 blue, P2 gap-up doji/top, P3 gap-down red with CMP below P1's open.
Every pattern across pages 3–5 collapses to a few rules. Note: still no targets — those arrive with support and resistance (next page).
| Long trade | Short trade | |
|---|---|---|
| Risk taker enters | last day of pattern, ~3:20 PM (validate) | last day of pattern, ~3:20 PM (validate) |
| Risk averse enters | next day, only on a blue candle | next day, only on a red candle |
| Stop-loss | lowest low of the pattern | highest high of the pattern |
| Target | later (S&R) | later (S&R) |
In one breath: a harami is a trend running out of breath, a gap is overnight news jumping the price, and the morning/evening star is a three-day reversal you trade on P3 — long stop at the lowest low, short stop at the highest high, target still to come.
Look at which candle is big and which comes first. Engulfing: the second candle is the big one, swallowing the first. Harami: the first candle is the big one, with a small second candle inside it. Big-then-small is exhaustion (harami); small-then-big is a takeover (engulfing).
The rule of thumb: the more days a pattern spans, the sooner you should act. A star already took three sessions to form and gives strong confirmation (gap, indecision, gap-back). Waiting a fourth day would push your entry far from the ideal price and deepen the stop, for little added certainty.
News while the market is closed — results, policy, global cues. All the reaction bunches up at the open, so the first trade prints well above or below the previous close. The empty band is simply prices at which nobody was willing to transact overnight.
No — a doji or a spinning top both work, because both signal the same thing: indecision after the trend-confirming P1. A doji middle earns the fancier "doji star" label, but the trade setup and logic are identical either way.
The reps build the instinct. You cannot skip to reading the bull/bear story cold — you get there by trading standard patterns until the underlying logic becomes second nature. The names are training wheels; the goal is to eventually not need them.
Generally yes. The extra middle candle shows the losing side first tried to continue (the gap) and then hesitated (the doji) before the reversal candle. That visible failure-then-reversal is more convincing than a plain two-candle engulfing, though you will still confirm it against the checklist coming up.
Two only. Both run in your head or a scratch file — no software, no invented tools.
Two mini-tasks from the module's own numbers.
(a) two candles at the bottom of a downtrend (Axis Bank):
P1 O 868 H 874 L 810 C 815
P2 O 824 H 847 L 818 C 835
(b) a morning star at the bottom of a downtrend:
P1 O 150 H 152 L 138 C 140 (long red)
P2 O 136 H 138 L 133 C 137 (gap-down doji)
P3 O 141 H 156 L 140 C 154 (gap-up blue)(a) Step 1 — two conditions. P2 open (824) > P1 close (815)? Yes. P2 CMP/close (835) < P1 open (868)? Yes — P2's small blue body sits inside P1's long red body. Prior trend down. → bullish harami.
(a) Step 2 — entry + stop. Long near P2's close → ~835. Stop = lowest low of P1, P2 = min(810, 818) = 810.
(b) Step 1 — validate the star. P1 is a long red (140 < 150). P2 gapped down (open 136 < P1 close 140) and is a doji (open 136 ≈ close 137). P3 gapped up (open 141 > P2 close 137) and its close 154 > P1's open 150. All three conditions hold → morning star.
(b) Step 2 — entry + stop. Long on P3 near close → ~154. Stop = lowest low of all three = min(138, 133, 140) = 133 (P2's low).
(a) P2 open 824 > P1 close 815 ok
P2 close 835 < P1 open 868 ok -> small body inside P1
prior trend down -> BULLISH HARAMI
long ~835 stop = min(810,818) = 810
(b) P1 red (140<150) ok
P2 gap-down (136<140) & doji (136~137) ok
P3 gap-up (141>137) & close 154 > P1 O150 ok
-> MORNING STAR
long ~154 stop = min(138,133,140) = 133A new trader reports back on Chapters 9–10. Four statements are wrong. Find each and correct it.
A. "In a harami, the second candle is the big one that engulfs the first."
B. "A gap up means lots of shares traded between the old and new price."
C. "For a morning star I'll wait for the confirming candle on day 4 before entering."
D. "The morning star's stop-loss is always the low of P1."A — wrong. That describes an engulfing. In a harami the first candle is the big one and the second is small, tucked inside it. Fix: harami = big P1, small P2 contained within.
B — wrong. A gap means no trades happened between the two prices — that empty band is the gap. Fix: a gap up = zero trading between the old close and the new higher open.
C — wrong. A three-day star is entered on P3 itself by both risk types; no day-4 wait. Fix: enter the star on P3 around the close.
D — wrong. The stop is the lowest low of the whole pattern — which is often P2 (the gap-down candle), not P1. Fix: stop = lowest low across P1, P2, P3.
A wrong -> harami = big P1, small P2 inside (not engulfing)
B wrong -> a gap = NO trades between the two prices
C wrong -> enter the star on P3, not day 4
D wrong -> stop = lowest low of ALL three (often P2)