What is Harami?
Harami is a reversal Forex candlestick pattern. It indicates an upcoming downtrend or that a rally is losing strength.
How does Harami Candlestick Formation look like?
Harami formation consists of two candlesticks, the first has a relatively long body followed by the second candlestick which has a smaller body entirely ranging within the body of the first (longer) candlestick.
What does Harami formation tell us?
Whenever we encounter Harami formation, it means that the price is going to fall down.
If Harami appears while the price is rallying, it means that the rally is losing strength and the price action is likely to change.
The smaller the wick (shadow) of the second candlestick, the more accurate Harami formation is.
The smaller the second candlestick is, the stronger the bearish signal.
If the second candlestick is more at the top of the first candlestick during an uptrend, this means the price might keep up its bearish bias, instead of reversing into an uptrend.
If the second candlestick is more at the bottom of the first candlestick during a downtrend, this means the price might keep its bearish bias, instead of reversing.
What should I do when I see Harami Candlestick formation?
- Harami is a reversal candlestick pattern, which means price is expected to change its direction after the pattern is formed.
- In an uptrend, you expect price to fall, so you should be looking for selling opportunities.
- In a downtrend, you expect price to rise, so you should be looking for buying opportunities.
In all cases be careful not to depend too much on Harami candlestick pattern, nor any other candlestick patterns out there. You need to keep in mind other factors such as your Forex indicators, Fibonacci etc.