Harami candlestick pattern guide
The Harami candle is either a bullish or bearish candlestick pattern and is often helpful for forex trend reversal trading. Technical traders respect the information that the Harami candle produces. Which makes this pattern valuable for the currency trader. This article will cover principal topics that outline the Harami candlestick pattern trading strategy.
Bullish VS Bearish Harami Candle FAQ
What does a harami candle indicate ?
Harami candle pattern is a Japanese candlestick that involves two candles. These two candles indicate a potential reversal or continuation in the market. The word ‘Harami’ is derived from the Japanese word for ‘pregnant’. It represents the Harami candlestick pattern. This pattern can signal both bullish and bearish trends as you can see below.
As the image indicates above, Harami is a type of Japanese candlestick pattern represented by two bodies:
- For the bullish harami pattern, the first candle has a large red body and the second candle has a tiny bullish body that locates inside the previous bearish candlestick.
- For the bearish harami pattern, the first candle has a large bullish body and the second candle has a tiny red body that locates inside the previous green candlestick.
This confirming structure is a valuable chart analytic tool to tell traders when the smaller trailing gives life to a reversal. Or, it follows the trend with the next starting candle. The popularity of the Harami pattern and other candlestick patterns is due to their ability to catch reversal patterns. It can also spot it at the most reasonable time with lower risk.
Bullish Harami pattern
The bullish Harami candlestick pattern has a very large red body. And a small green body contained inside the red body. In a harami pattern, the body of the candlestick of the day is fully embedded in the body of the previous candlestick. In a harami pattern, the two candlesticks shouldn’t have opposite colors. However, this configuration is common in practice.
Indeed, this type of candle will allow us to predict a downward reversal of future movements. This type of decision method is also a very well suitable technique for traders. These traders wish to intervene on cycles of 15 to 30 minutes. It is a tool that traders widely use for short-term trading.
Also, note that for a better interpretation. You should give great importance to the size of the bodies and shadows of the candles. These candles form a candlestick pattern.
So, for example, a candle with a relatively large body indicates significant pressure.
The smaller the shadows are, the more marked the pressures are. So, it is preferable when you observe large candlesticks with small shadows. The objective is to stay in the movement and not in the opposite direction.
Finally, a movement should always be accompanied by significant transaction volumes.
How to recognize this bullish candlestick ?
The Bullish Harami candlestick pattern appears after a long downtrend and in a bear market. The Bullish Harami pattern suggests market uncertainty. Note that when the market is in a downward trend. And this market is materialized by the presence of a long candlestick with a red body. We generally notice that the market begins to doubt. Following the presence of the green candlestick. Moreover, this could be a sign that a trend reversal will occur. And the downside force is diminishing. The smaller the body included inside a long body. The more powerful the knockdown structure will be.
How to interpret it?
A bullish harami pattern indicates an uptrend when it is preceded by a downtrend. A harami notices a deceleration of momentum. The appearance of such a structure. Often implies the appearance of a more or less long congestion band. It also indicates that the market takes a break. However, this remark is not valid on dips. As it will generally be a change in trend. This figure can appear in a downtrend. And anticipates an interruption or a reversal of this trend. The presence of a harami in an evolution curve should rather be interpreted as a slowing down of the present trend.
Bearish Harami pattern
A bearish Harami is a pattern formed by two Japanese candlesticks. It is a long bullish candlestick (green) followed by a small bearish candlestick (red) whose range is contained within the first candlestick. This is a kind of reverse bullish engulfing.
The bearish Harami pattern often forms after a significant rise. It is characterized by several large green Japanese candlesticks.
The bearish Harami is a reversal pattern. It indicates a downward trend reversal. This reflects a loss of speed and strength of the movement.
The larger the body of the second candlestick, the least likely the strength of the pattern is. This could be the case in a support zone. Conversely, the smaller the body of the second candlestick. The more powerful the reversal pattern.
How to recognize bearish candlestick ?
This “bearish harami” candlestick pattern appears in an uptrend. It is a sign of a contradiction in the health of the market. The bull market is supported by the presence of a green candlestick with a long body. But this trend is contradicted by the presence of a small candlestick with a red body on the second day. Which shows some uncertainty as to the continuity of the trend rise. This shows that the pressure of buying bulls is weakening. And that the bears are regaining control. Leaving the market with the possibility of a future trend reversal.
How to interpret it?
A bearish harami pattern indicates a downtrend if preceded by an uptrend. A harami notices a deceleration of momentum. It appears when a candle with a small body fits inside a larger body. The appearance of such a structure often implies the appearance of a more or less long congestion band. The market pauses if we are at the top of an uptrend. Otherwise, it will be a trend change. The smaller the body included inside a long body. The more powerful the knockdown structure will be.
How to trade with those patterns ?
On the day after the bullish Harami occurs. And when there is an increase in price. This could be a buy signal. Therefore, if a bullish Harami appears with a trendline break. Then this could mostly be an interpretation of a buy signal. On the other hand, it could be a sell signal if the day after the bearish Harami occurs. And also, if there is a further reduction in prices that close below the upward support trendline. This is why when there is a trendline break and a bearish Harami pattern together. This could be a potential sell signal.
So, this type of pattern is a reversal pattern. It often releases after a downtrend. In addition, a bear Harami is also a reversal model. This time, it often releases after an uptrend. It is always a sound trading strategy. Its aim is to confirm each signal with other trading signals.
Trading strategy example
In July 2022, the EURUSD pair in daily quotations shows the existence of a bullish Haramis candlestick. This candle anticipates a rise in prices, in a downward trend.
So, as you can see from the graph below. The structure does not fulfill the necessary conditions.
Indeed, we can observe a graph, that evolves in an upward trend. And then a fall in prices on the day of the validation. The figure is not being validated. So, The reversal of the short-term decline will not materialize.
In short, the bullish harami strategy resides in detecting the candlestick pattern at the bottom where an upward reversal may occur.
In July 2022, the EURUSD currency pair in daily quotations shows the existence of a bearish harami candlestick pattern.
As you can see in the chart below. The validation day matches the bearish scenario.
In addition, the uptrend appears clearly. So, we have a very good signal for a downward reversal.
In short, the bearish harami strategy resides in detecting the candlestick pattern at the top where a downward reversal may occur.
Conclusion
The Harami pattern is one of several Candlestick patterns. Its use is to find bullish and bearish reversals with the emergence of two-candle harami patterns in the FX market. Traders generally use other technical tools to filter harami signals and enhance the accuracy of the candlestick pattern strategy.