In this guide to understanding the Harami Candlestick Pattern, we’ll show you what this chart looks like, explain its components and teach you how to interpret it with an example.
What Is a Harami Candlestick Pattern?
The Harami Candlestick Pattern is considered a trend reversal pattern that can either be bullish or bearish, depending on the direction of the price action.
What Does a Harami Candlestick Look Like?
A Harami pattern can be either bullish or bearish, depending on the color of its candles. Each pattern consists of two Candlesticks that occur on successive days:
|Day 1||Day 2|
|Bearish Harami||Larger bullish candle (green)||Smaller bearish candle (red)|
|Bullish Harami||Larger bearish candle (red)||Smaller bullish candle (green)|
What Is a Bearish Harami?
A bearish Harami occurs at the top of an uptrend when there is a large bullish green candle on Day 1 followed by a smaller bearish or bullish candle on Day 2.
The most important aspect of the bearish Harami is that prices gapped down on Day 2 and were unable to move higher back to the close of Day 1. This is a sign that uncertainty could be entering the market.
What Is a Bullish Harami?
A bullish Harami occurs at the bottom of a downtrend when there is a large bearish red candle on Day 1 followed by a smaller bearish or bullish candle on Day 2.
Again, the most important aspect of the bullish Harami is that prices gapped up on Day 2 and the price was held up and unable to move lower back to the bearish close of Day 1.
What Does the Harami Candlestick Mean?
The chart below of the Nasdaq 100 E-mini Futures contract shows an example of both a bullish and bearish Harami candlestick pattern:
The first Harami pattern shown on Chart 2 above of the E-mini Nasdaq 100 Future is a bullish reversal Harami. First, there was a long bearish red candle. Second, the market gapped up at the open. In the case above, Day 2 was a bullish candlestick, which made the bullish Harami look even more bullish.
How Do You Trade on a Bullish Harami?
In Chart 2 above, a buy signal could be triggered when the day after the bullish Harami occurred, the price rose higher and closed above the downward resistance trendline. A bullish Harami pattern and a trendline break is a combination that could result in a buy signal.
How Do You Trade on a Bearish Harami?
The second Harami pattern shown in Chart 2 above is a bearish reversal Harami which could also trigger a buy signal. The first candle was a long bullish green candle. On the second candle, the market gapped down at the open. Day 2 showed a bearish candlestick which made the bearish Harami look even more bearish.
A sell signal could be triggered when the day after the bearish Harami occurred, the price fell even further down, closing below the upward support trendline. When combined, a bearish Harami pattern and a trendline break might be interpreted as a potential sell signal.
Where Can I Start Trading?
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 53.00%-89.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Below we answer some common questions about Candlestick indicators.
Which candlestick pattern is most reliable?
According to the book Encyclopedia of Candlestick Charts by Thomas Bulkowski, the Evening Star Candlestick is one of the most reliable of the candlestick indicators. It is a bearish reversal pattern occurring at the top of an uptrend that has a 72% chance of accurately predicting a downtrend.
What is a Marubozu Candlestick?
A Marubozu Candlestick pattern is a candlestick that has no “wicks” (no upper or lower shadow line). A green Marubozu candle occurs when the open price equals the low price and the closing price equals the high price and is considered very bullish. A red Marubozu candle indicates that sellers controlled the price from the opening bell to the close of the day so it is considered very bearish.
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