The Harami Candlestick Pattern
The Harami Candlestick Pattern is a small real body that is contained within what the japanese call “an unusually long black or white real body.” “Harami” is an old japanese word for pregnant. the japanese nickname for the long candle is the “mother” candle and the small candle is the “baby”. the second candle of the harami can be white or black.
The japanese will say that with a Harami the market is “losing its breath.”
Harami Candlestick Pattern structure
The combination of candle lines in the harami pattern, with its first tall real body followed by a small real body, is the reverse of the engulfing pattern. In the engulfing pattern, a lengthy real body engulfs the preceding small real body.
Another difference between the harami and engulfing patterns is that for the two candles of the engulfing pattern, the color of the real bodies should be opposite. this is not necessary for the harami. you should find, however, that in most instances, the real bodies in the harami are oppositely colored.
Harami Cross candlestick patterns
the regular harami has a tall real body followed by a small real body. yet, there are no rules as to what is considered a “small” candle. this, like many other charting techniques, is subjective. as the general principle, the more diminutive the second real body, the more potent the pattern. this is usually true because the smaller the real body, the greater the ambivalence and the more likely a trend reversal. in the extremes, as the real body becomes smaller as the spread between the open and close narrows, a doji if formed. A doji preceded by a long black real body during a decline is a distinctive type of harami referred to as a harami cross.
Understanding the Harami Cross
A bullish harami cross pattern forms after a downtrend. The first candlestick is a long down candle (typically colored black or red) which indicates that the sellers are in control. The second candle, the doji, has a narrow range and opens above the previous day’s close. The doji candlestick closes near to the price it opened at. The doji must be completely contained with the real body of the previous candle.
A bearish harami cross forms after an uptrend. The first candlestick is a long up candle (typically colored white or green) which shows buyers are in control. This is followed by a doji, which shows indecision on the part of the buyers. Once again, the doji must be contained within the real body of the prior candle.
Trading the Harami Cross Pattern
It is not required to trade the harami cross. Some traders use it simply as an alert to be on the lookout for a reversal. If already long, a trader may take profits if a bearish harami cross appears and then the price starts dropping after the pattern. Or, a trader in a short position may look to exit if a bullish harami cross appears and then the price starts rising shortly after.
Some traders may opt to enter positions once the harami cross appears. If entering long on a bullish harami cross, a stop loss can be placed below the doji low or below the low of the first candlestick. A possible place to enter the long is when the price moves above the open of the first candle.
If entering a short, a stop loss can be placed above the high of the doji or above the high of the first candle. One possible place to enter the trade is when the price drops below the first candle open.
Harami cross patterns don’t have profit targets. Therefore, traders need to use some other method of determining when to exit a profitable trade. Some options include using a trailing stop loss, finding an exit with Fibonacci extensions or retracements, or using a risk/reward ratio.