HARAMI

In Japanese, Harami means 'pregnant' and the reason can be clearly known from the explanation below. Even this pattern needs minimum two candles and it indicates reversal of trend. There are two kinds of Harami pattern :

1. Bullish Harami
2. Bearish Harami


1. Bullish Harami

For a pattern to be recognized as Bullish Harami, following conditions must be satisfied:

1. Red candle should be formed at the bottom end of downward rally i.e. forming new low establishing strong control by bears.
2. Next candle should be green and its opening price should be higher than close price of the previous red candle and close price should be less than open price of the previous red candle. This means, bulls suddenly were successful in their attempt of taking the price higher at an unexpected time which makes bears unstable.
3. This leads to reversal of trend.
4. It is called 'pregnant' in Japanese because second candle looks like it is contained within the first candle.


2. Bearish Harami

For a pattern to be recognized as Bearish Harami, following conditions must be satisfied:

1. Green candle should be formed at the top end of upward rally i.e. forming new high establishing strong control by bulls.
2. Next candle should be red and its opening price should be lower than closing price of previous green candle and its closing price should be higher than previous candle's opening price. This means, bears suddenly were successful in their attempt of bringing the price down at an unexpected time which makes bulls unstable.
3. This leads to reversal of trend.

To Summarize :

1. Bullish Harami is when red candle forms at the bottom end of downward rally and green candle forms next where in it appears as if it is contained inside the red candle, then it will result in trend reversal.
2. Bearish Harami is when green candle forms at the top end of upward rally and red candle forms next where in it appears as if it is contained inside the green candle, then it will result in trend reversal.
3. In my experience, most of the times, trend reversal resulting due to harami pattern will be only short rally. Because, for example, during the strong downward rally, an appearance of green candle suddenly will only make the bears lose control for short period of time and they will gather their strength again and bring prices down. If green candle formed was successful in engulfing the complete candle (engulfing pattern ) or more than half of the candle (piercing pattern ) then it will lead to good upward rally and not in the case of harami.


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