There are simple and complex candlestick patterns. There are one-suited, two-suited, and three-suited candlestick patterns. Harami is a two-suited candlestick pattern. Two bar patterns take two days to form on the daily charts. A Harami is formed when the first day candle is longer than the second day candle. Harami can be both bullish and bearish!
A bullish Harami candlestick pattern is formed when the candlestick for the first day is bearish. Rather, the first day is very bearish and occurs in a downtrend. But on the second day, the bulls kick in and try to push the prices higher. But the bulls are not very successful. The second day’s close is still lower than the first day’s open and the first day’s high is never exceeded. However, the second day is a sign that the bulls have started to take positions and stop the current downtrend.
The second day is still a bearish day following a downtrend. On the second day, the open is higher than the close of the first day. Bulls dominated the second day as the close is higher than the open.
The bulls remain cautious after the downtrend thinking that the bears will come back and push prices even lower. The confidence that bulls gain when this does not happen encourages more buying and the culmination of the downtrend and the beginning of an uptrend.
Now, like most candlestick patterns, a Harami can fail. What this means is that you need to confirm it with price action the next day. Always place your stop loss first when trading. When you see a Harami, place your stop loss near the open of the second day.
Harami has a few variations. In the bullish Harami crossover pattern, the first day is bearish. On the second day or what you call the signal day, you will find a bullish Doji formed with an open higher than the close of the first day and a close lower than the open of the first day. Bullish Harami Cross is not a frequent pattern, but when it does appear, it signifies an abrupt trend reversal.
The Bearish Harami Pattern is reversed. The first day candle is bullish, but the second day candle is bearish with an open lower than the close of the first day and a close higher than the open of the first day. But this means that the bears have taken over the market and a new downtrend will soon develop.