What are Harami Candlestick Pattern?
It is a candlestick pattern, which shows the indecision of the market. It can appear anywhere in the chart, that is at the end of a bull run or at the end of a bearish trend or along the ongoing trend. In English it is called as an Inside Day candlestick.
In Japanese language, it means, pregnant. It is made of two candles, one containing the other. First candle with long real body is compared to the 'mother' and second candle with small real body is compared to the 'baby' in the womb.
Future of the baby is unknown. It may climb up the life or it may keep falling down the life.
Harami Candlestick Pattern is formed by the combination of two candlesticks. The small real body of the second candle lies with in the range of the long real body of the first candle. Either of the candle may be black or white.
The trend, any trend for that matter is in force having longer white or black candles. Next day, may be at a support or resistance level or following a news or an event, the price opens with in the range of the real body of the previous candle. Through out the day the price goes up and down. But neither the bulls are strong nor the bears are strong. At the end of the day the price closes with in the open and close range of the previous day.
Study the chart given below.
Harami candlestick is an indecision candlestick. The open with in the open and high range of the previous candle signify that the traders were neither bullish nor bearish at the opening of the day.
Through out the day the tug of war continues between bulls and bears. But at the end of the day neither the bulls could move the price above the open and close price of the previous day, nor the bears could pull down the price below the open and close price of the previous day. The consensus of the traders is still uncertain.
But at the end of a trend the significance of the harami candlestick changes.
In a down trend we get a series of long black bodied candlestick or filled candlesticks. That is the price opens high and closes low in consecutive candles. At the level of a prominent support the demand increases to halt the fall of the price. As the bears are busy selling, the smart money accumulate the stock.
But the supply being equally good the bulls cannot take price any higher than the open and close of the previous day.
Similarly in an up trend we get a series of long white bodied candlestick or unfilled candlesticks. That is the price opens low and closes high in consecutive candles. At the level of a prominent resistance the supply increases to halt the rally of the price. As the bulls are busy buying the smart money is busy unloading the stock.
But the demand being equally good the bears cannot push price any lower than the open and close of the previous day.
The action on the next day decides the further course of the price movement.
Harami if it is a part of NR4 (Narrow Range of 4 days) or NR7 (Narrow Range of 7 days), will have more significance. It is a different trading strategy. The trading range for several days is been compressed like a spring and its breakout gives huge movement.
In any case Harami candlestick pattern should alert you to be cautious, to prepare to cover your long or short position, or to establish a new position. All these action depends on the following day's confirmation candlestick.
At the top and bottom of a trend Harami candlestick pattern may be a reversal pattern.
Along the trend, it is a continuation pattern. Harami candlestick will keep appearing along the course of a trend, denoting a small halt or a slow down before the price continue their journey.
In an up trend if the first candle is a white candle and the second candle is a filled inside day candle, then the combination may be termed Bearish Harami Candlestick Pattern.
Similarly in a down trend if the first candle is a black candle and the second candle is an unfilled inside day candle, then the combination may be termed Bullish Harami Candlestick Pattern.
If the range of the real body of the second candlestick is longer than the range of the real body of the first candlestick, the resultant combination can be bullish or bearish engulfing candlestick patterns, which are powerful reversal patterns.
Read about them by clicking the link given in the list below..
There are many more complex candlestick patterns used in stock analysis. Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.