Using the bearish harami pattern for a clever trade

For a good look at what the bearish harami looks like on a real chart, check out Figure 8-5. The chart is of the ETF that represents a group of the largest retail stocks, including Wal-Mart, Home Depot, and Walgreens. The trading symbol for this ETF is RTH. I have an affinity for retailers because I covered them fundamentally, and I've traded them at various firms. I also like this ETF and individual retailers as trading vehicles because their performances are closely linked to the state of the economy. With fluctuations in economic opinion comes volatility in these stocks, and with volatility comes trading opportunities!

The setup day of this two-day bearish harami pattern is a very strong up day that occurs in the midst of an uptrend that's been in place for several weeks. The signal day is an inside day that's a little on the bearish side. After that day the price falls quickly, back to the level where the uptrend began. The fall occurs much more quickly than the ascent, which is often the case with downward moves. They tend to happen much more quickly than uptrends. I guess fear is stronger than greed in the stock market.

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