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Home » » Learning the Famous Harami Candlestick Pattern

Learning the Famous Harami Candlestick Pattern

Harami is a candlestick pattern consisting of two candlesticks, where the body of the second candlestick is smaller and falls within the range of the body of the first candlestick. The term "Harami" in Japanese means "pregnant," illustrating how the second candlestick seems to be "wrapped" within the body of the first one.

The Harami pattern can signal potential changes in market direction. There are two types of Harami that traders commonly monitor: Bullish Harami and Bearish Harami.

Types of Harami

  1. Bullish Harami

    • Formation: It occurs after a downtrend, starting with a large bearish (red) candlestick, followed by a smaller bullish (green) candlestick that resides within the body of the first.
    • Meaning: Indicates a potential reversal from a downtrend to an uptrend. The second candlestick suggests that the downward momentum may be losing strength.
    • Confirmation: Traders typically wait for a third candlestick to confirm the upward price movement before acting on the bullish signal.

  2. Bearish Harami

    • Formation: It appears after an uptrend, starting with a large bullish (green) candlestick, followed by a smaller bearish (red) candlestick that is within the body of the first.
    • Meaning: Indicates a potential reversal from an uptrend to a downtrend. The second candlestick shows that the upward momentum might be weakening.
    • Confirmation: Traders usually wait for a third candlestick to validate the downward price movement before acting on the bearish signal.

Application in Trading

  1. Timeframe and Validity:

    • Daily Timeframe (D1): For more valid signals from the Harami pattern, it is advisable to use the daily timeframe. This timeframe provides a clearer picture and stronger signals.
    • H4 Timeframe: After understanding the Harami pattern, traders can utilize the 4-hour (H4) timeframe for trading. This timeframe is also useful for confirming signals from patterns formed in higher timeframes.
    • Lower Timeframes: Avoid using timeframes lower than H4, as candlestick patterns may form too frequently, potentially generating false signals.

  2. Support and Resistance:

    • Bullish Harami: Its accuracy increases if the pattern forms near or at a support area, indicating that prices may rise after hitting the support level.
    • Bearish Harami: Its accuracy improves if the pattern forms near or at a resistance area, suggesting that prices may drop after touching the resistance level.

  3. Stop Loss Placement:

    • Bullish Harami: Place the stop loss a few pips below the lower shadow of the first candlestick. This protects against potential price movements that go against your position.
    • Bearish Harami: Place the stop loss a few pips above the upper shadow of the first candlestick. This helps avoid losses if the price moves against your bearish position.

  4. Example Cases:

    • Bullish Harami: Suppose the first candlestick (bearish) has touched the support area, followed by the second candlestick (bullish) forming a Bullish Harami. Traders might wait for confirmation from the third candlestick before entering a buy position or use a pending order around the upper shadow of the second candlestick.
    • Bearish Harami: If the first candlestick (bullish) has touched the resistance area, followed by the second candlestick (bearish) forming a Bearish Harami, traders may wait for confirmation from the third candlestick before entering a sell position or use a pending order around the lower shadow of the second candlestick.

Visualizing the Harami Pattern

  • Bullish Harami:
    • The first candlestick (bearish) is large, followed by a smaller candlestick (bullish) within the body of the first candlestick.
  • Bearish Harami:
    • The first candlestick (bullish) is large, followed by a smaller candlestick (bearish) within the body of the first candlestick.

The Harami candlestick pattern is a valuable technical analysis tool for identifying potential trend reversals. By understanding both Bullish and Bearish Harami formations and their practical applications in trading, you can enhance your ability to read market movements and make more informed trading decisions. Always ensure you use an appropriate timeframe and consider support and resistance levels in your analysis.

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