The Harami pattern is one of the most reliable reversal candlestick formations in technical analysis. Derived from the Japanese word meaning "pregnant," this two-candle pattern signals potential trend exhaustion and upcoming price reversals. Understanding how to identify and trade the Harami pattern can significantly improve your ability to catch turning points in the market.
What is the Harami Pattern?
The Harami is a two-candlestick reversal pattern where the second candle is completely contained within the body of the first candle. This "inside bar" formation indicates that momentum is slowing and the current trend may be losing strength.
Key concept: The Harami pattern shows that the market's conviction is weakening. The small second candle inside the larger first candle represents indecision and a potential shift in control between buyers and sellers.
How to Identify the Harami Pattern
To properly identify a Harami pattern, look for these characteristics:
Bullish Harami (Reversal from Downtrend)
- First candle: A large bearish (red/black) candle in a downtrend
- Second candle: A smaller bullish (green/white) candle
- Containment: The body of the second candle is completely within the body of the first candle
- Context: Appears after a sustained downward move
Bearish Harami (Reversal from Uptrend)
- First candle: A large bullish (green/white) candle in an uptrend
- Second candle: A smaller bearish (red/black) candle
- Containment: The body of the second candle is completely within the body of the first candle
- Context: Appears after a sustained upward move
Pattern Identification Example
Stock XYZ has been trending down for several days. A large red candle forms with a body from $48 to $52.
The next day, a small green candle forms with a body from $49 to $50.50.
The second candle is entirely within the first candle's body, forming a Bullish Harami.
This signals potential buying interest and a possible reversal upward.
The Psychology Behind the Harami Pattern
Understanding the psychology helps you trade the pattern more effectively:
- Day 1: Strong momentum continues the existing trend with a large candle
- Day 2: The market opens within the previous candle's body, showing hesitation
- Day 2 close: Price closes still within the previous body, indicating momentum has stalled
- Implication: The dominant side (buyers in uptrend, sellers in downtrend) is losing control
Harami Cross Variation
The Harami Cross is a more powerful variation where the second candle is a doji:
- The doji shows even more indecision than a small-bodied candle
- Harami Cross patterns are considered stronger reversal signals
- The doji must still be contained within the first candle's body
- Volume confirmation becomes even more important with this variation
Important Distinction
Do not confuse the Harami with the Engulfing pattern. In the Harami, the second candle is smaller and contained within the first. In the Engulfing pattern, the second candle is larger and completely covers the first candle's body.
Trading Strategies for the Harami Pattern
Strategy 1: Confirmation Entry
Wait for additional confirmation before entering:
- Identify the Harami pattern at a key support or resistance level
- Wait for the third candle to confirm the reversal direction
- For bullish Harami: Enter long when the third candle closes above the Harami high
- For bearish Harami: Enter short when the third candle closes below the Harami low
- Place stop loss beyond the opposite side of the pattern
Strategy 2: Aggressive Entry
For traders who want earlier entries:
- Enter at the close of the second candle (the inside bar)
- Use a tighter stop loss just beyond the pattern
- Accept higher risk for potentially better reward
- Only use this approach at strong support/resistance levels
Trade Setup Example
A Bullish Harami forms on stock ABC at a known support level of $100.
First candle: Open $105, Close $100 (large red candle)
Second candle: Open $101, Close $102 (small green candle within the first)
Entry: Buy at $103.50 when price breaks above the pattern high
Stop loss: $99 (below the pattern low)
Target: $110 (previous resistance)
Combining Harami with Other Indicators
Increase pattern reliability by using additional confirmation:
Volume Analysis
- Declining volume on the second candle suggests trend exhaustion
- Increasing volume on the confirmation candle validates the reversal
- High volume Harami patterns are more reliable
RSI Divergence
- Bullish Harami with RSI oversold condition is a stronger buy signal
- Bearish Harami with RSI overbought condition is a stronger sell signal
- RSI divergence adds extra confirmation to the reversal
Support and Resistance
- Harami patterns at key support/resistance levels are more significant
- Patterns at Fibonacci retracement levels increase probability
- Confluence of multiple factors creates high-probability setups
Common Mistakes to Avoid
- Ignoring the trend: Harami patterns require an existing trend to reverse
- Not waiting for confirmation: Entering before the third candle confirms often leads to false signals
- Wrong context: Harami patterns in choppy, sideways markets are unreliable
- Ignoring the wicks: While the body must be contained, extremely long wicks on the second candle can weaken the signal
- Oversized second candle: If the second candle is too large, the pattern loses its significance
Pattern Success Rates
Understanding realistic expectations for Harami patterns:
- Harami patterns have moderate reliability (55-65% success rate with confirmation)
- Harami Cross patterns are slightly more reliable
- Patterns at key levels have higher success rates
- Multiple timeframe confirmation increases probability
- Always use proper risk management regardless of pattern quality
Best Practices for Trading Harami Patterns
- Always identify the existing trend before looking for Harami patterns
- Use multiple timeframe analysis - patterns on higher timeframes are more reliable
- Wait for confirmation unless trading at very strong support/resistance
- Combine with volume analysis and other technical indicators
- Keep risk-reward ratio at minimum 1:2
- Document your Harami trades to understand which setups work best for your style
Track Your Harami Pattern Trades
Pro Trader Dashboard helps you analyze your candlestick pattern trades and identify which setups provide the best results for your trading style.
Summary
The Harami pattern is a valuable two-candlestick reversal formation that signals potential trend changes. The pattern works by showing momentum exhaustion when the second candle's body is completely contained within the first candle's body. Bullish Harami patterns form in downtrends and signal potential upward reversals, while Bearish Harami patterns form in uptrends and signal potential downward reversals. For best results, combine Harami patterns with volume analysis, support/resistance levels, and other technical indicators. Always wait for confirmation and use proper risk management to maximize your success with this pattern.
Learn more: Support and Resistance and RSI Indicator.