Candlestick Pattern: Harami
The Harami pattern is the opposite of the engulfing pattern, it’s just that the harami candlestick pattern can or should be the same color, and very similar to the inside bar pattern in the OHLC graph. Like the engulfing pattern, Harami pattern consists of two candlesticks with the first candlestick being a big candlestick and the second is a relatively small candlestick.
The name harami comes from the Japanese word for pregnancy, with the first candlestick seen as a “mother” (mother candle) with a large real body that actually forms or manifests a smaller second candlestick, much like the appearance of a pregnant mother. The second candlestick may look like a spinning top or doji. When the second candlestick is a doji, the pattern is called cross harami.
The second candlestick color is not important. More often that the second candlestick will be the first candlestick opposite color. However, the important thing is the harami location in the previous trend and trend direction. The Harami pattern is a trend reversal pattern and should therefore appear in a predetermined trend but should be seen in the context of the graph.
So, if the harami pattern appears at or near the support or resistance line, or trend line, it becomes more significant. If the Harami pattern appears in an uptrend then this is a bearish signal. And if when it shows up in downtrend then this is a bullish signal.
The emergence of the second harami and short candlestick body, is a signal that doubt and uncertainty following a sudden spike in price movements. This causes the trend to lose momentum. In an uptrend, it means that the buyer has failed to follow up on activity spikes and closes the second candlestick at or near the previous high candlestick level. And in a downtrend, it means that the seller has failed to close the second candlestick near the previous low candlestick level. In both cases this weakness indicates that a trend reversal may be imminent.
Harami cross pattern is more important because it contains doji, which is a candle with no real body or small body. As mentioned in the discussion of the type of candlestick, the doji is formed when the close and high levels are the same or very close. They tend to show doubt and uncertainty in the market. Also, doji with long shadow is more significant than doji with short shadow.