Whether you are a day trader, swing trader, or a long-term investor, finding information that relates to future price action can be the advantage every trader needs to be profitable. There are many candle patterns traders can rely on, such as the Harami candlestick pattern.
Candlestick patterns are a form of technical analysis that many traders depend on to determine forthcoming price direction. Candle patterns can be the edge you are looking for when validated by other technical indicators and trading strategies.
The candles on a chart, or bars, contain information regarding the high, low, opening, and closing value of an asset. The size of the candle can also hint at market participation.
When a candle or series of candles creates a pattern, they illustrate a story that can predict a possible trend reversal or continuation.
Identifying these candlestick patterns can be a useful technical tool when combined with a trading strategy. They can provide a reliable signal regarding a viable trade position.
The Harami candlestick pattern can be bullish and bearish in nature. Depending on where it presents, a trader can decipher the information and utilize it to their trading benefit.
What Does the Harami Candlestick Pattern Look Like?
The Harami is a Japanese candlestick pattern that contains two candles. The pattern has distinct attributes which relate to its name.
In Japanese, Harami means “pregnant”. The shape of the Harami two candlestick patterns resembles that of a pregnant woman.
The Harami pattern first contains a large candlestick and then a smaller candlestick. The larger candle known as a mother bar precedes a smaller candle, a baby in a mother’s belly.
The first candle’s body of the Harami pattern should be a large or long candlestick that aligns with the current trend.
If the market is in a downtrend, the candle should be bearish or red, aligned with the downtrend. The candle’s close is lower than the opening value.
If the market is in an uptrend, the candle should be bullish or green, aligned with the up-trending market. The candle’s close is higher than the opening price.
The second candle of the Harami pattern should be a small candle.
The body of the second candle should be inside the first candlestick.
This simply means that the bar’s open and close price action should be contained in the body of the previous bar.
What Does the Harami Candlestick Pattern Mean?
The Harami pattern can present as a bearish Harami or a bullish Harami.
In both instances, it is a two candle engulfing pattern where one candle embodies the other.
Either way, a Harami pattern is commonly viewed as a trend reversal pattern.
The Bearish Harami
The bearish Harami candlestick pattern is a bearish reversal pattern. When it appears at the top of an up-trending market, a trader should be mindful of price action reversing down.
The mother bar, or first candle, will be a large bullish candle. This long bullish green candle demonstrates price action being pushed higher in line with the current uptrend.
The “baby” candle will then open lower than the previous candlestick’s close. Its small body will be within the first candle, meaning both the opening and closing values will be contained. A gap down in price is ideal, and the lower the closing price, the more significant.
The sentiment being conveyed here is that the buyers were attempting to push the market price higher, but the next candle shows small consolidation. This suggests that there may be an end to bullish control and the price may reverse and go down.
The Bullish Harami
The bullish Harami candlestick pattern also suggests a change in price direction, but it occurs at the end of a down trending market.
This is typically referred to as a bullish reversal pattern.
When it appears at the bottom of a downtrend, it could signal price action moving to the upside in the near future.
In the instance of a bullish Harami pattern, the mother bar will be a large bearish red candle in line with the current bearish trend.
The second candle, or baby candle, is fully engulfed by the first candle. It should open higher than the close of the previous bearish candle. The opening value will also be within the previous candle. A gap up in the opening price is ideal, and the higher the close, the more significance the pattern may have.
The sentiment being conveyed in the bullish Harami is that the sellers were attempting to push the market lower, but the “baby” candle reveals higher consolidation.
Trading Harami Candlestick Patterns
All candlestick pattern information should be confirmed by additional technical analysis, indicators, and strategy before entering a trade position. The Harami pattern is no exception.
Here are some useful examples of how to validate and utilize the Harami candles information. This information is meant to be for educational purposes only and not financial advice.
Using Technical Indicators
Since the bearish Harami pattern and bullish Harami pattern indicate trend reversals, using technical tools such as the MACD, RSI, or Bollinger Bands could be useful to confirm the change in price direction.
For example, Bollinger Bands have been around since the 1980s. The indicator consists of three trend lines or bands, the middle being a simple moving average. As candles move from one outer band to the other, we can see price trends, which can paint a picture of overbought or oversold market conditions.
If a Harami pattern presents on the upper Bollinger Band, it may confirm a bullish trend is wrapping up and signal price moving down. If a Harami pattern presents on the lower Bollinger Band, it may suggest a bearish trend is ending and signal a price move to the upside.
Using a trading strategy to confirm Harami patterns is advisable as well.
For example, if you use supply and demand to determine where the big money moves are being made in the market, this could prove useful when a Harami pattern manifests.
If an uptrend has been present and a bearish Harami pattern forms near a supply zone, a trader may be cautious of price action going south. It may be in a trader’s best interest to exit an existing long position or option call if the pattern is verified. You could also possibly wait for a retest of the zone and enter an option put or short position as well once confirmed.
The fact that the pattern occurred at a level of supply, suggests the information is more valid. The same would be true if it was a bullish Harami candle pattern, and it occurred at a demand zone, insinuating the down trending price may reverse to the upside.
Many patterns can be validated by how the next candle presents or a series of proceeding candles. Many traders refer to these candles as confirmation candles.
If you identify a bullish Harami at the end of a downtrend expecting the price action to then go up, the green candlestick color and higher price action after the move would further validate the reversal. If the market developed a bearish candle, you may doubt the reversal and look at the possible continuation of the trend or more consolidation.
Summary: Harami Candlestick Pattern
The Harami candlestick pattern is a two candle pattern that depicts a possible shift in price trend.
The first bar is a long candle aligning with the current trend. The second candle is contained or within the first.
Bullish and bearish Harami patterns exist.
It is important to validate the Harami by using other technical tools and trading strategies.
Trading involves significant risk. Practice identifying, validating, and utilizing the Harami candles and other candlestick patterns before applying them to live trading situations.
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