A harami cross is a Japanese candlestick pattern that consists of a large candlestick indicative of the prevailing trend, followed by a small doji candlestick completely contained within the prior candlestick’s body. This pattern signifies that the prevailing trend may be about to reverse, providing valuable insights for traders. It can be either bullish or bearish, signaling possible price reversals to the upside or downside, respectively.
Image depicting bullish and bearish Harami Cross examples.
Key Takeaways
- A bullish harami cross features a large down candle followed by a doji, appearing during a downtrend.
- Confirmation: The bullish pattern is confirmed when the price moves higher following this formation.
- A bearish harami cross showcases a large up candle followed by a doji, occurring during an uptrend.
- Confirmation: The bearish pattern gains credence when the price moves lower after this formation.
Understanding the Harami Cross
Bullish Harami Cross Pattern
A bullish harami cross pattern develops post a downtrend. The initial candlestick is a long down candle—often black or red—showcasing seller control. Following this is a narrow-range doji, opening above the previous candle’s close and closing close to its opening price. The doji’s body must be entirely within the prior candle’s real body.
The emergence of the doji demonstrates market indecisiveness among sellers. Traders generally wait for a confirming price move upwards over the subsequent few candles, showcasing a trend reversal possibility.
Bearish Harami Cross Pattern
Conversely, a bearish harami cross follows an uptrend. The first candlestick is a long up candle—usually white or green—indicating buyer control, followed by a contained doji showing buyers’ indecision.
If the price descends post-pattern formation, the bearish sentiment is thus validated. A continued price rise post-doji, however, invalidates the bearish pattern.
Enhancing Harami Cross Patterns
- For a bullish harami cross: Observe various indicators including RSI moving up from oversold states and the occurrence of this pattern at major support levels, indicating a potential upward price movement.
- For a bearish harami cross: Analyze the downward moving RSI from overbought levels, with an enhanced focus on patterns emerging near significant resistance levels.
Trading Using the Harami Cross Pattern
The harami cross does not necessitate immediate trading. Certain traders regard it as an alert for potential reversals. Trades like profit curtailing in a long position, exit in a short position when bullish or bearish patterns emerge post pattern confirmation, respectively.
If optically initiating trades, consider placing stop-losses above/below doji or initial candlestick high/low points. Entry positions above/below the first candlestick’s opens are advantageous based on individual trader contexts.
Harami cross patterns suggest a revised determination method for profitable trade exits, including fittings like trailing stops, Fibonacci extensions or retracements, and utilizing the risk/reward ratio analysis techniques.
Example of a Harami Cross
Below is a visual instance of a bearish harami cross in American Airlines Group Inc. (AAL). Price movements observed a higher shift into a resistance zone where the bearish harami pattern materialized, catalyzing a trend shift confirmation.
Bearish Harami Cross on Daily Chart.
The price dipped further for several weeks before ultimately breaking through the resistance level, capitalizing on confirming a broader market view.
Related Terms: Doji Candlestick, Reversal, Trend Analysis, Bullish, Bearish, Support Level, Resistance Level.
