Candlestick Patterns – Harami

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I've already covered some of the better known patterns like Doji and Engulfing – now it's time to add Harami to your candlestick chart pattern arsenal. Let's take a look at what this technical signal looks like, and what opportunities might be presenting themselves when you see it.

Harami patterns can be bearish or bullish

Harami, like engulfing patterns, are a two candlestick formation. They are actually often confused with engulfing patterns because they both involve candles where one real body is bigger than the other. The difference is that in harami, the preceding (or first) candle in the pattern is the longer one of the pair; it encompasses the whole body of the second candlestick.

If you see this two candlestick pattern, it could be a sign of a reversal

In a candlestick chart, bullish harami are formed when a long filled (or red) candlestick appears during an established downtrend and is followed by a smaller hollow (or green) candlestick. The reason this is a bullish signal is based on the idea that the first candle forms during a session with potentially high volume and bearish sentiment. The following day, there is a gap higher to open, a smaller trading range, and prices were supported above the previous day's close. This is seen as a potential indication that things are about to turn – a bullish reversal.

A bearish harami is made up of a long hollow (or green) candlestick occurring during an established uptrend which is then followed by a smaller filled (or red) candlestick. Similar principles apply to this signal as they did to the bullish version – the first day makes way for a smaller range led by a gap lower and selling pressure that kept prices from rising.

It is worth noting that some candlestick chartists suggest harami can include candlesticks of any color combination – filled + filled, filled + hollow, and hollow + hollow. The whole point for them is for a larger candlestick to be flanked by a smaller one. The reversal signal is just potentially stronger when the second candle is a different color. The two different candle sizes are just seen as an abrupt and sustained bit of trading contrary to the prevailing trend.

Harami are telling you that there has been a sudden trading shift

This candlestick pattern tends to crop up when there has been an apparent loss of trading momentum. The kanji definition of harami is embryo – I take this to mean that the second candlestick is just the early start of a new trading direction, contrary to the existing one. Like most candlestick patterns, it may be wise to look for confirmation of a reversal once you spot harami.

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Best Trades to you,
Larry Levin
Founder & President- Trading Advantage

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3 thoughts on “Candlestick Patterns – Harami

  1. I would look at news 1st - is there something in today's, or late yesterday's news that could precipitate a change? Next I'd look for confirming on-chart patterns, especially moving averages and crossing Bollinger Bands. I used to set MA's on Fib series #'s (8, 13, 21, 34, 55, 89, 144 etc) until I realized that the big hedge funds and institutions all trade on 50, 100, 200 and even 500! As institution generally "drive" market direction, not retail customers, I started using the conventuals on MA's to get a glimpse of "institutional thinking". The BBands - I set one @ 1 S.D. & 5 or 8 days as a signal. I set a second T 3 S.D. & much farther out, 34, 55 & sometimes 89, to encompass 98%+ price action probable. Where is the 1/8 relative to the 3/34-89? If it is running along the "top rail", and the Harami signals down, that would support a downturn in price, especially if the 1/8 has narrowed in width the past few days! If the 1/8 is in the middle of the 3/34-89, and the 1/8 is wide, the Harami doesn't carry as much weight.

    If no news, and no MA/Bollinger crossovers, check volume - if it is any above avg or recent vol, that would help confirm a pattern change. Next I'd look to my other indicators and confirmed as well as a momentum indicator or two. When the preponderance signal a break up or down, then I'll believe the Harami, or any other chart pattern. Some of the patterns are more in the mind of the chartist than in reality, IMHO! I wouldn't risk any money without a LOT of confirmation with other ingredients!

  2. Hi there,

    How often do you think this works?
    I mean do you confirm a trade right after seeing such a patter or do you need any other "stars to align" as well?

    Cheers bro!

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