subject: Harami Candlestick Trend Reversal Pattern [print this page] Harami is a two stick candlestick pattern that tells of a potential trend reversal in the market. This pattern takes two days to form. It is called Harami, a Japanese word for a pregnant woman as it looks like a pregnant woman on the charts. It can be bullish as well as bearish.
In case of the bullish harami, the first day is a bearish candle that occurs in a downtrend. On the second day, bulls enter the market and start moving the prices higher but not with much success as the price close lower than the open of the first day and the first day's high is not surpassed. However, when this pattern appears it culminates in a trend reversal.
If you want to identify the bullish harami pattern, it should have the following features. The market should be in a downtrend. The setup day has a longer candle than the signal day. The setup day candle has an open greater than the close and the body is fairly long.
The open on the signal day should be higher than the close of the candle on the setup day. The signal day candle should have a close higher than the open.
An important variation to this Harami pattern is the Harami Cross Pattern. This pattern is formed when the signal day pattern is a Doji. Doji is a famous candlestick pattern that has the open and the close equal or almost equal. A Harami Cross Pattern does not appear frequently but when it does, it means a sudden abrupt trend reversal.
When this pattern appears and you want to trade it, you can use the close of the setup day as your stop loss. Sometimes, using too tight a stop might get you out of a successful trade. However, putting a stop loss with enough room can keep you in a bad trade too long. Where to place the stop loss is an art plus a science and it is one of the most difficult parts of trading.
