What is The Harami?
The Harami helps to define the end of a retracement or muted reversal.
The word Harami means pregnant in old Japanese. When you see a Harami pattern, the first candle stick is the mother and the second is the baby. If the baby candlestick is not entirely within the body of the mother then it is not a true Harami pattern.
The Harami
Typically, in a bullish Harami, the first bar closes lower than it’s open price while the second bar closes higher.
With a bearish Harami, the first bar closes higher than it opens while the second bar closes lower.
**Note – Some also refer to the Harami as the Inside Bar.**
How Do We Trade The Harami?
The Harami is usually traded best when the market is in a defined trend.
For example, if the market has been in a downtrend, the appearance of The Harami could be an indication of the continuation of the trend.
In a bullish Harami, we would buy or go long after the completion of the second candle.
In a bearish Harami, we would sell or go short after the completion of the second candle.
Examples
In the example below, we see an example of the Harami, following a defined downtrend. Our expectation is that there will be a continuation of the trend.
At this point we would enter just below the child candle, following it’s full formation.
Our SL would be just above the high of the mother candle.
In the example below, we see 2 examples of the Harami, following a defined uptrend. Our expectation is that there will be a continuation of the trend.
At this point we would enter just above the child candle, following it’s full formation.
Our SL would be just below the low of the mother candle.
In the example below, we an example of the Harami, following a defined uptrend. Our expectation is that there will be a continuation of the trend.
At this point we would enter just above the child candle, following it’s full formation.
Our SL would be just below the low of the mother candle.
NEXT LESSON!
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See you then!