One of the types of Japanese candlestick patterns is called the Harami pattern. This pattern is very visible in the candlestick structure and has a relatively high efficiency. This pattern has two types , ascending and descending . Here, with a full explanation of this pattern, we discuss the structure and the way to trade with these candles.

Introducing the Harami Pattern
Harami consists of two candles with contrasting colors. The behavior of candles in this pattern is the opposite of the spread pattern . Harami means pregnant in Japanese. That is why the first candle is called mother and the second candle is called child. Given that the mother gives birth to whatever she is pregnant with, then in this pattern, the second candle represents a trend.

Harami, although it shows that the price has separated from its previous trend, but it is not a 100% reversal pattern. This pattern mostly means the completion of the ruling process. But after this pattern, the trend reverses or continues without a trend, it is not clear and it depends on the share and the market. The presence of Harami in the market is a sign of confusion. Although this pattern is not a trend reversal signal, many people are encouraged to enter into a buy or sell transaction by seeing Harami.

A good example is that Harami is not always a buy or sell signal, but a brake on the previous trend.

In Harami, the body of the second candle is smaller than the body of the first candle, and regardless of the shadows , the entire body of the second candle is inside the body of the first candle. Placing these two candles next to each other creates a price gap between the closing of the mother candle and the opening of the baby candle .

If in the second candle, the opening price and the closing price of the candle are very close to each other, so that a doji is formed instead of a candle with a small body, a Harami cross pattern is formed. Compared to the normal pattern, the Harami cross pattern is more important; Because it works more strongly in the trend reversal warning.

Bullish Harami

An Bullish or ascending Harami consists of two candles of opposite color. The color of the first candle is red or dark and the color of the second candle is green or light.

The second candle indicates that the price has become volatile. A bullish Harami indicates that the previous downtrend is coming to an end. However, some investors look at Harami as a stock buying pattern. This pattern shows that on the third day (after the formation of the pattern), the trend will go slightly up; However, breaking out of this pattern takes two or more candles.

The structure of the bullish pattern

If the opening and closing prices are very close in the second candlestick, a bullish Harami cross pattern is formed.

The structure of the Harami cross pattern

Bearish Harami
A bearish Harami is just the opposite of its reversal pattern. This pattern consists of two candles. with the difference that the first candle is green or light and the second candle is red or dark. The bearish Harami mother candlestick is green, following its previous uptrend.

A baby candle with a contrasting color and a small body indicates that the market is fluctuating and warns of the end of the trend or even a drop in price. Therefore, the color of the second candle tells the leading trend. The second candle is so much smaller than the first candle of the model that it fits in the heart of the mother candle body. This causes a price gap between the closing of the mother candle and the opening of the baby candle.

Descending Harami pattern structure

Bearish Harami Like its reverse pattern, if the open price and the close of the second candlestick are very close to each other, bearish Harami cross pattern is formed.

Harami
The structure of the Bearish Harami Cross pattern


Harami Pattern Trading
To trade with Harami, it is better to use indicators like RSI . In bearish Harami, if a confirmation candle is formed, the sale should be done after the second candle of the pattern breaks, because in this situation the price tends to break the previous trend and the loss limit is placed above the white candle.

To be more sure of making the right trade, if the RSI indicators are in the overbought area, you can enter a sell position. For the profit limit, it is better to use the support and resistance ranges or other technical tools . With the help of the 50-day moving average, it is possible to ensure the continuation of the trend after the pattern or failure of the trend. If the pattern is accompanied by a trend break in the 50-day moving average, the probability of the trend reversal will be higher.

In the above image related to the steel share, which Harami was the reason for the continuation of the trend, the 50-day moving average has not crossed the price line.

A bearish Harami may be violated.

Violation of the bearish Harami pattern

In a bull market, a bearish Harami acts more like a continuation pattern than a reversal pattern.

In a bullish Harami, it is better to let a candle close after the pattern formed and above the day the Harami formed. In 75% of the cases, this condition works correctly.

One of the good confirmations in bullish Harami is the price gap that forms between the baby candle and the pattern confirmation candle after the completion of the pattern, and it predicts the price rise and reversal of the trend. By applying the 50-day moving average on the chart, if a pattern is formed below the moving average, the performance of the pattern will be higher than when a bullish Harami is formed above the 50-day moving average.

Frequently Asked Questions
What is a Harami pattern?
Harami is one of the types of Japanese candlestick patterns. This pattern is very visible in the candlestick structure and has a relatively high efficiency. There are two types of Harami pattern, ascending and descending.

What is the shape of the Harami pattern?
In Harami, the body of the second candle is smaller than the body of the first candle. Regardless of the shadows, the whole body of the second candle is inside the body of the first candle. Placing these two candles next to each other creates a price gap between the closing of the mother candle and the opening of the baby candle.

Mohsen Haghi

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