What it means
A harami is a two-candle pattern where a small body sits entirely inside the previous large body. A bullish harami follows a large bearish candle; a bearish harami follows a large bullish candle. If the second candle is a doji, it is a harami cross.
Why traders use it
The large first candle shows strong momentum; the small second candle shows that momentum stalled. It is a pause pattern that can precede a reversal.
Chart examples
Bullish harami
Bearish harami
How to identify it objectively
- 1Candle 1: large body in the trend direction.
- 2Candle 2: small body within candle 1's body.
- 3Colour of candle 2 is usually opposite (not required).
- 4Wait for a close beyond candle 1's midpoint or body.
Bullish use
- 1Large bearish candle in a decline.
- 2Small candle inside its body.
- 3Confirmation: close above the large candle's midpoint.
Bearish use
- 1Large bullish candle in a rally.
- 2Small candle inside its body.
- 3Confirmation: close below the large candle's midpoint.
What confirms it
- A confirmation close.
- Location at a level.
What invalidates it
- A close beyond the large candle in the trend direction.
How a hypothetical setup is built
Entry
On the confirmation close.
Stop
Beyond the large candle's extreme.
Target
The prior swing.
A hypothetical illustration of how the concept is turned into a plan, not a recommendation. Practise it on a paper account first.
Related concepts
- Candlestick PatternsBullish and Bearish Engulfing
- Candlestick PatternsInside Bar and Outside Bar
- Candlestick PatternsDoji Candlesticks
Historical testing
Not tested on The Tradeskill.
Limitations: when it fails
- Weaker than engulfing.
- Often just a pause in a trend.
- Stops can be wide if the first candle is large.
Knowledge check
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