The Harami candlestick pattern is often used in forex trading to spot potential trend reversals or continuations. Technical traders value the signals provided by the Harami candle, making this pattern a valuable tool for any trader. This article will cover the following key topics about the Harami candlestick pattern in forex:
- What is a Harami candlestick?
- How to use the Harami candle in forex trading
- Harami pattern trading strategies
- Learn more about trading with Harami candlesticks
What is a Harami Candlestick?
The Harami candlestick is a Japanese candlestick pattern made up of two candles that suggest a potential market reversal or continuation. The word “Harami” comes from the Japanese word for “pregnant,” which symbolizes the appearance of the pattern. The Harami candlestick pattern can indicate both bullish and bearish signals, as explained below:
Bullish Harami:
- Occurs during an established downtrend.
- Begins with a larger bearish (red) candle.
- Followed by a smaller bullish (green) candle—where the price moves up after the bearish candle but stays within the open and close of the previous bearish candle.
Bearish Harami:
- Occurs during an established uptrend.
- Begins with a larger bullish (green) candle.
- Followed by a smaller bearish (red) candle—where the price moves down after the bullish candle but stays within the open and close of the previous bullish candle.
As shown in the images (if applicable), the first candle (the “pregnant” candle) is a large candle that continues the current trend, while the second candle is smaller and looks like it’s “inside” the first, resembling a pregnant woman. It’s important to know that, technically, the second candle should “gap” inside the first candle. However, in forex trading, gapping is rare because the market is open 24 hours. As a result, the typical Harami pattern is not as common in forex, and the second candle often just appears as a small inside bar of the first.
The third confirming candle helps traders decide whether the smaller, second candle is signaling a reversal or whether the trend will continue as indicated by the first candle. The Harami pattern, along with other candlestick patterns, is popular because it allows traders to potentially catch a reversal at an ideal moment with minimal risk, leading to favorable risk-reward ratios.
Uses of the Harami Candle in Forex Trading
Advantages of the Harami Pattern:
• Easy to identify: The Harami pattern is straightforward, making it accessible for traders at all levels.
• Opportunities for large movements: It offers the chance to take advantage of significant price changes with potentially high risk-reward ratios.
• Widely used: This pattern is popular and commonly applied in forex trading.
Limitations of the Harami Pattern:
• Needs confirmation: Before acting on the Harami pattern, it’s important to wait for confirmation from the following candle or other indicators.
Trading with the Harami Candle Pattern
The Harami candlestick pattern can signal both bullish (upward) and bearish (downward) trends, depending on the confirmation candle. The forex charts below (if applicable) show examples of both types of Harami patterns and how they appear in the forex market.
In both cases, the candle marked as ‘3’ is the confirmation candle that verifies the pattern. As with most candlestick patterns, traders can also use other technical indicators to strengthen the signal provided by the Harami pattern.
Bullish Harami:
Example: The Bullish Harami shown above indicates a continuation of the current upward trend for the EUR/USD pair. It’s important to note that not all Harami patterns signal reversals; some, like this one, indicate that the current trend will continue.
Bearish Harami:
Example: The Bearish Harami illustrated above shows a reversal pattern forming, with the reversal happening at a medium-term high. Reversal signals are often stronger when they occur at significant price levels, such as support, resistance, or previous highs and lows.
When interpreting Harami candles, context is crucial. By analyzing the previous trend and price movements, traders can gain better insights and make more accurate predictions about what the Harami pattern might mean. Without considering the context, the Harami pattern is just three candles that may not hold much significance.
