Charting the Markets: Harami

For those wanting to understand reverse candlestick patterns on a deeper level, you’ve come to the right place. In our last article, we discussed the Inverted Hammer & Shooting Star patterns — why they occur, how a trader can spot them, and what market trends they precede. But, to understand reverse candle stick patterns, it is also important to understand candlestick charts in general: 

Candlestick charts offer detailed information about price movements within a particular time frame, including the opening, closing, high, and low prices. Each "candlestick" consists of a body (the range between the open and close) and wicks (shadows) that extend to high and low prices. Green (or white) candles indicate prices closed higher than they opened, while red (or black) candles show prices closed lower than they opened.

In this article, we will be introducing an additional member of reverse candlestick patterns – the Harami pattern. 

Harami

Unlike the patterns we’ve mentioned thus far, Harami does not just contain a single candle, but two. To recognize this pattern, it’s crucial to look at the length of the candlestick bodies. Usually, the first candlestick has a significantly larger body than the second candlestick. Additionally, although not mandatorily, the second candle opens higher or lower than the spot where the first candle closed, depending on the market trend. There are three different types of Harami patterns: 

1. Bullish Harami 

Occurs when the second (bullish) candlestick is significantly smaller than the first (bearish) candle. The second candlestick might open at a higher position, but this is not necessary. This pattern signifies a trend shift from bearish to bullish. Generally, the bigger the gap, the bigger the trend shift. Lastly, the bigger the second candle, the higher the chance of a trend shift.

2. Bearish Harami 

Occurs when the second (bearish) candlestick is significantly smaller than the first (bullish) candle. The second candlestick might open at a higher position, but this is not necessary. This pattern signifies a trend shift from bullish to bearish. Generally, the bigger the gap, the bigger the trend shift. Lastly, the bigger the second candle, the higher the chance of a trend shift.

3. Harami Cross

Interestingly, the Harami pattern can occur in the form of a Doji instead of the second candlestick. However, the Harami cross does not differ from the traditional Harami pattern. Nevertheless, since a bigger second candle generally results in a higher chance of a trend shift, it is then important to wait for confirmation from a subsequent candle.

Here is an example of Harami patterns occurring in an actual situation:

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Hopefully, this article will help out with recognizing and working with the Harami candlestick pattern. Keep your eyes peeled for our next article, where we will discuss more useful candlestick patterns you’re likely to encounter on your trading journey.