It is important for traders to know the price action patterns in the candlesticks. The reason for this is that this single curve pattern directly shows the price movement and market transaction volume of the asset in real time.
One candlestick pattern that traders must understand is the harami pattern. The word harami comes from the Japanese meaning pregnant. In fact, this pattern is similar to pregnant women in that one candle is larger. another one
What is the Harami pattern and what does this pattern imply? Check out the comments below:
Understanding Harami Candlestick Patterns
Harami candlesticks are chart patterns that consist of two pairs of candles of different colors. And the first candle is larger than the others. to understand more Lets look at the following picture:
What does the Harami candlestick pattern indicate?
from circle area You can see that this pattern consists of two candlesticks of different sizes. and the second candlestick moves in the opposite direction. but still in one area of the first candlestick Indirectly, you know that this pattern indicates Trend reversal (reversal).
This can happen because even if it is still in the area of the first candlestick, But the second candle is moving in the opposite direction. This indicates that there is a saturation point in the market. Therefore, the trend is reversing.
Because of these indications Harami patterns are therefore divided into two types: upward harami and downward harami. Bullish Harami occurs when a large red candle is followed by a small green candle. This pattern indicates that the market is tired of the downtrend and therefore is pushed up.
On the other hand, a bearish harami occurs when there is a big green candle followed by a small red candle. This second pattern occurs because the market is tired of facing an uptrend and thus reverses down.
To understand, let’s look at the following picture:
The indicator of this reversal will be greater if:
- Harami pattern formation is located near support or resistance. So it has the potential to breakout.
- The closing price of the second Harami candle is near the high of the closing price of the first candle.
- The closing price of the second candle bearish harami is approaching the low of the closing price of the first candle.
Difference between Harami candlestick and Inside Bar
Another candlestick pattern that traders should understand is stripes inside. The shape of this pattern is similar to the Harami pattern. It consists of two candles, with the first being larger than the second. Another similarity between the two patterns is that the last candle continues to move within the area of the previous candle.
However, there are quite obvious differences between the two formats. The first difference is in the form of an inner bar The size of the second candlestick is larger than the second candlestick in harami pattern. The second difference is that the harami pattern indicates a reversal. while the inner bar pattern indicates market uncertainty. (although there is a potential reversal as well)
The size of the second candle in the Harami pattern also indicates the gap between the opening and closing prices between the second and first candles. The price gap in this pattern is greater than the price gap between two candles in an inside bar pattern.
Pros and cons of the Harami pattern
The advantages of the Harami pattern compared to other formats is that this pattern is easier to identify. In addition, the Harami pattern can also appear in various time frames. be it hourly, daily or weekly. Therefore, it is quite useful to determine when to buy and sell assets.
The downside, however, is that this pattern is rarely seen when the market is in liquid state. The reason is that price movements in active markets don’t usually create a gap between the first and the second candle. Therefore, this pattern is rarely found in the Forex market. which is actually the most liquid asset market in the world.
Trading Tips with Harami Candlestick Patterns
1. Confirm the shape and position of the pattern.
The first step in identifying a possible reversal of this pattern is Make sure the second and first candlesticks move in opposite directions. If this happens You can see if the close of the second candle is close to the closing price of the first one. And will this pattern occur near support or resistance? As mentioned above If both conditions occur The possibility of a reversal is even greater.
2. Wait for the third candle.
The third candle serves as a confirmation of a true trend reversal. This confirmation is important so that you do not rush to buy or sell assets. Make sure the second and third candlesticks are the same color. Because this means a reversal (reversal) is actually happening in the market.
The advantage of waiting for confirmation is that you can open a more stable position. The downside is that you may need to minimize your losses and not maximize your profits because you can’t. buy when weak and can only be bought on breakout
3. Confirm the use of technical indicators
Another component that you can consider opening positions using this pattern is the price reversal confirmation using technical indicators. The technical indicators used are those that can detect trend strength. (Overbought/oversold) such as the RSI indicator, Average Directional Index (ADX), etc.
using this indicator At least before the second candle closes or the confirmation candle appears. Shows that you are ready to open a sell or buy position based on the information from this indicator.
The Harami candlestick is a pattern that consists of two candles of different colors and sizes. The first candle is larger than the second. This pattern indicates a trend reversal. However, since the height of the second candlestick is much shorter than the first, This pattern is therefore quite rare in liquid markets such as the Forex market.